Federated Investors, Inc. Reports Fourth Quarter and Year-End 2011 Earnings

  • Equity and fixed-income assets increased $4.6 billion during Q4 2011 to $84.6 billion
  • Net sales in equity and fixed-income funds and separate accounts were $2.2 billion in Q4 2011
  • Average money market assets increased $8.5 billion during Q4 2011 compared to Q3 2011

(PITTSBURGH, Pa., ) — Federated Investors, Inc. (NYSE: FII), one of the nation's largest investment managers, today reported earnings per diluted share (EPS) of $0.36 for the quarter ended Dec. 31, 2011 as compared to $0.45 for the same quarter last year.  Net income was $36.9 million for Q4 2011 compared to $46.4 million for Q4 2010.  The decrease of $9.5 million primarily relates to an increase in the negative impact of money market fund minimum-yield waivers.

Federated reported EPS for the year ended Dec. 31, 2011 of $1.45 compared to $1.73 for the year ended Dec. 31, 2010.  For the year ended Dec. 31, 2011, net income was $150.9 million compared to $179.1 million for the prior year.  The decrease of $28.2 million primarily relates to an increase in the negative impact of money market fund minimum-yield waivers and an increase in professional service fees related to the recognition of insurance proceeds in Q2 2010.

Federated's total managed assets were $369.7 billion at Dec. 31, 2011, up $11.5 billion or 3 percent from $358.2 billion at Dec. 31, 2010 and up $18.0 billion or 5 percent from $351.7 billion reported at Sept. 30, 2011.  Average managed assets for Q4 2011 were $358.3 billion, up $12.6 billion or 4 percent from $345.7 billion reported for Q4 2010 and up $9.5 billion or 3 percent from $348.8 billion reported for Q3 2011.  Combined equity and fixed-income net sales for funds and separate accounts were a positive $2.2 billion for Q4 2011 and $2.9 billion for the year ended Dec. 31, 2011.

"In a year when income-seeking strategies were in demand, investors found a range of opportunities at Federated, from our multi-sector and high-yield bond strategies to the particular interest in equity portfolios investing in dividend-paying companies in the U.S. and across the globe," said J. Christopher Donahue, president and chief executive officer.  "Combined assets in Federated's strategic-value portfolios more than doubled in 2011 to reach $10 billion, while our Strategic Value Dividend Fund became one of the best selling equity-income funds in the industry last year."

Federated's board of directors declared a quarterly dividend of $0.24 per share.  The dividend is payable on  Feb. 15, 2012 to shareholders of record as of Feb. 8, 2012.  During Q4 2011, Federated purchased 561,850 shares of Federated class B common stock for $9.0 million. In 2011, the company purchased 1,540,795 shares of Federated class B common stock for $28.1 million.

Federated's equity assets were $30.9 billion at Dec. 31, 2011, up slightly from $30.8 billion at Dec. 31, 2010 and up $2.9 billion or 10 percent from $28.0 billion at Sept. 30, 2011.  Net sales were positive in both equity funds and separate accounts for Q4 2011 and for the year ended Dec. 31, 2011.  Top-selling equity funds during Q4 2011 on a net basis were Federated Strategic Value Dividend Fund, Federated International Strategic Value Dividend Fund and Federated Clover Small Value Fund. 
 
Federated's fixed-income assets were $44.8 billion at Dec. 31, 2011, up $4.1 billion or 10 percent from $40.7 billion at Dec. 31, 2010 and up $1.9 billion or 4 percent from $42.9 billion at Sept. 30, 2011.  Fixed-income assets in liquidation portfolios were $8.9 billion at Dec. 31, 2011.  Sales were driven by strong net flows into Federated Total Return Bond Fund, Federated Municipal Ultrashort Fund, Federated Institutional High Yield Bond Fund, Federated Total Return Government Bond Fund and Federated's Capital Preservation Fund.

Money market assets in both funds and separate accounts were $285.1 billion at Dec. 31, 2011, up $9.1 billion or 3 percent from $276.0 billion at Dec. 31, 2010 and up $13.4 billion or 5 percent from $271.7 billion at Sept. 30, 2011.  Money market mutual fund assets were $255.9 billion at Dec. 31, 2011, up $11.1 billion or 5 percent from $244.8 billion at Dec. 31, 2010 and up $10.6 billion or 4 percent from $245.3 billion at Sept. 30, 2011.
  
Financial Summary

Q4 2011 vs. Q4 2010

Revenue decreased by $28.9 million or 12 percent due primarily to an increase in voluntary fee waivers related to certain money market funds in order for those funds to maintain positive or zero net yields and a decrease in, as well as a change in the mix of, average equity assets.  These decreases were partially offset by an increase in revenue from increased average money market and fixed-income assets.  See additional information about voluntary fee waivers in the table at the end of this financial summary.
 
Federated derived 53 percent of its revenue from equity and fixed-income assets (31 percent from equity assets and 22 percent from fixed-income assets), 46 percent from money market assets and 1 percent from other products and services.

Operating expenses were $154.5 million compared to $166.3 million.  This decrease of $11.8 million was primarily a result of lower distribution expense due to the aforementioned increase in fee waivers.

Q4 2011 vs. Q3 2011

Revenue increased by $2.4 million or 1 percent primarily related to an increase in money market and fixed-income assets, partially offset by a decrease in revenue related to changes in equity asset mix.

Operating expense increased by $7.5 million or 5 percent.  This primarily related to a $4.3 million increase in distribution expense largely due to improved prime money market fund yields and increased assets.

2011 vs. 2010

Revenue decreased $56.8 million or 6 percent due primarily to an increase in the aforementioned fee waivers, partially offset by increased assets in all asset categories.

Federated derived 53 percent of its revenue from equity and fixed income assets (33 percent from equity assets and 20 percent from fixed-income assets), 46 percent from money market assets and 1 percent from other products and services. 

Operating expenses decreased by $4.5 million or 1 percent.  The decrease primarily reflects lower distribution expense due to the aforementioned increase in fee waivers.  This decrease was partially offset by an increase in professional service fees for 2011 related to the recognition of insurance proceeds in Q2 2010 and nonrecurring legal expenses in Q1 2011.

Federated's level of business activity and financial results are dependent upon many factors including market conditions, investment performance and investor behavior.  These factors and others including asset levels, product sales and redemptions, market appreciation or depreciation, revenues, fee waivers and expenses can impact Federated's activity levels and financial results significantly.  Risk factors and uncertainties that can influence Federated's financial results are discussed in the company's annual and quarterly reports as filed with the Securities and Exchange Commission.

Fee waivers to maintain positive or zero net yields could vary significantly based on market conditions.  The amount of these waivers will be determined by a variety of factors including, but not limited to, available yields on instruments held by the money market funds, changes in assets within money market funds, actions by the Federal Reserve, the U.S. Department of the Treasury and other governmental entities, changes in the mix of money market customer assets, changes in expenses of the money market funds and Federated's willingness to continue these waivers.

Money Market Fund Yield Waiver Impact
(in millions)
 Quarter EndedChange Q4 2010 to Q4 2011Sept. 30, 2011Change Q3 2011 to Q4 2011Year Ended
Change 2010 to 2011
(Decrease)/
Increase
Dec. 31, 2011Dec. 31, 2010Dec. 31, 2011Dec. 31, 2010
Investment advisory fees $ (58.8) $ (32.6)  $ (26.2)  $ (57.2)  $ (1.6)  $ (201.6)  $ (134.3)  $ (67.3) 
Other service fees   (30.2)    (27.4)    (2.8)    (31.7)    1.5    (119.1)    (107.3)    (11.8) 

Total Revenue

$ (89.0)  $ (60.0)  $ (29.0)  $ (88.9)  $ (0.1)  $ (320.7)  $ (241.6)  $ (79.1) 
Distribution expense   (61.9)   (47.7)   (14.2)   (63.2)   1.3   (232.3)   (186.6)   (45.7)
Operating income $ (27.1) $ (12.3) $ (14.8) $ (25.7) $ (1.4) $ (88.4) $ (55.0) $ (33.4)
Noncontrolling interest   (1.0)    (0.2)    (0.8)    (2.5)    1.5    (6.5)    (1.0)    (5.5) 
Pre-tax impact $ (26.1) $ (12.1) $ (14.0) $ (23.2) $ (2.9) $ (81.9) $ (54.0) $ (27.9)

Federated will host an earnings conference call at 9 a.m. Eastern on Jan. 27, 2012.  Investors are invited to listen to Federated's earnings teleconference by calling 877-407-0782 (domestic) or 201-689-8567 (international) prior to the 9 a.m. start time.  The call may also be accessed in real time on the Internet via the About Federated section of FederatedInvestors.com.  A replay will be available after 12:30 p.m. and through Feb. 3, 2012 by calling 877-660-6853 (domestic) or 201-612-7415 (international) and entering codes 286 and 386349.

Federated Investors, Inc. is one of the largest investment managers in the United States, managing $369.7 billion in assets as of Dec. 31, 2011.  With 134 funds and a variety of separately managed account options, Federated provides comprehensive investment management to approximately 4,700 institutions and intermediaries including corporations, government entities, insurance companies, foundations and endowments, banks and broker/dealers.  Federated ranks in the top 2 percent of money market fund managers in the industry, the top 7 percent of equity fund managers and the top 7 percent of fixed-income fund managers1.  For more information, visit FederatedInvestors.com.

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The preceeding paragraphs only represent a portion of the press release. To view the entire press release click on the full press release above.

1 Strategic Insight, Nov. 30, 2011.  Based on assets under management in open-end funds.

*These financial statements represent only a portion of the quarterly press release.

Certain statements in this press release, such as those related to the level of fee waivers incurred by the company, and product demand and asset flows constitute or may constitute forward-looking statements, which involve known and unknown risks, uncertainties and other factors that may cause the actual results, levels of activity, performance or achievements of the company, or industry results, to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements.  Other risks and uncertainties include the ability of the company to predict the level of fee waivers in future quarters, which could vary significantly depending on a variety of factors identified above, and include the ability of the company to sustain product demand and asset flows, which could vary significantly depending on market conditions, investment performance and investor behavior.  Other risks and uncertainties also include the risk factors discussed in the company's annual and quarterly reports as filed with the Securities and Exchange Commission.  As a result, no assurance can be given as to future results, levels of activity, performance or achievements, and neither the company nor any other person assumes responsibility for the accuracy and completeness of such statements in the future.

Full Press Release (PDF)

Media Contacts

For information and interviews, please contact our media relations team:

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412-288-8103

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412-288-7895

Analyst Contacts

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Federated Securities Corp. is distributor of the Federated Funds.
Separately managed accounts are made available through Federated Global Investment Management Corp., Federated Investment Counseling and Federated MDTA LLC, each a registered investment advisor.
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