Federated Investors, Inc. Reports First Quarter 2010 Earnings

PITTSBURGH, April 22 /PRNewswire-FirstCall/ -- Federated Investors, Inc. (NYSE: FII), one of the nation's largest investment managers, today reported earnings per diluted share (EPS) of $0.38 for the quarter ended March 31, 2010 compared to $0.34 for the same quarter last year.  Q1 2010 EPS reflects a $0.04 reduction due to the application of the two-class method of computing EPS in connection with the Q1 2010 dividend including the previously announced special dividend.  Q1 2009 results included non-cash impairment charges of $20.1 million or $0.13 per diluted share mainly related to intangible assets associated with certain acquisitions.  Net income was $42.0 million for Q1 2010 compared to $35.1 million for Q1 2009.  

Federated's board of directors declared a quarterly dividend of $0.24 per share.  The dividend is payable on May 14, 2010 to shareholders of record as of May 7, 2010.  During Q1 2010, Federated purchased 111,000 shares of Federated class B common stock for $2.7 million.

Federated's total managed assets were nearly $350 billion at March 31, 2010, down $59.3 billion or 14 percent from $409.2 billion at March 31, 2009 and down $39.4 billion or 10 percent from $389.3 billion reported at Dec. 31, 2009.  Average managed assets for Q1 2010 were $366.9 billion, down $44.8 billion or 11 percent from $411.7 billion reported for Q1 2009 and down $21.2 billion or 5 percent from $388.1 billion reported for Q4 2009.  As the equity and fixed income markets contracted in 2007 and 2008, Federated's money market assets increased by $182 billion and as markets recovered in 2009 and Q1 2010, $88 billion flowed out of  money market products.  Industry money market assets flowed in a similar manner as investors gained more confidence in broader market conditions leading to, among other things, increased interest in bond products.

"Federated continued to see strong flows into our fixed-income mutual funds, with gross sales topping $4.5 billion for the quarter," said J. Christopher Donahue, president and chief executive officer.  "In addition, Federated's consistent performance over the full market cycle has allowed the company to compete for and win larger institutional fixed-income mandates over the past several quarters."  

Federated's fixed-income assets were $35.5 billion at March 31, 2010, up $10.5 billion or 42 percent from $25.0 billion at March 31, 2009 and up $1.7 billion or 5 percent from $33.8 billion at Dec. 31, 2009.  Federated experienced continued positive flows into its bond funds with $1.2 billion during Q1 2010.  Net sales were driven by strong flows into Federated Total Return Bond Fund and the company's ultrashort and short-duration bond funds.  

Federated's equity assets were $30.1 billion at March 31, 2010, up $6.7 billion or 29 percent from $23.4 billion at March 31, 2009 and up $0.4 billion or 1 percent from $29.7 billion at Dec. 31, 2009.  Net sales were led by Federated Prudent Bear Fund and Federated Strategic Value Fund.

Money market assets in both funds and separate accounts were $272.3 billion at March 31, 2010, down $87.8 billion or 24 percent from $360.1 billion at March 31, 2009 and down $41.0 billion or 13 percent from $313.3 billion at Dec. 31, 2009.  Money market mutual fund assets were $240.2 billion at March 31, 2010, down $88.6 billion or 27 percent from $328.8 billion at March 31, 2009 and down $41.4 billion or 15 percent from $281.6 billion at Dec. 31, 2009.  

Financial Summary

Q1 2010 vs. Q1 2009

For Q1 2010, revenue decreased by $77.6 million or 25 percent from the same quarter last year.  The decrease in revenue primarily reflects a $59.8 million increase (to $69.5 million from $9.7 million for Q1 2009) in voluntary fee waivers related to certain money market funds in order to maintain positive or zero net yields.  This increase in fee waivers was largely offset by a related decrease in distribution expenses of $47.1 million (to $51.7 million from $4.6 million) such that the net impact on operating income was a decrease of $12.7 million (to $17.8 million from $5.1 million).  In addition, revenue decreased due to lower average money market managed assets, partially offset by the impact of increased average equity and fixed-income managed assets.  

In Q1 2010, Federated derived 50 percent of its revenue from money market assets, 49 percent from equity and fixed income assets (32 percent from equity assets and 17 percent from fixed-income assets) and 1 percent from other sources.  

Operating expenses for Q1 2010 were $161.2 million compared to $250.6 million for Q1 2009.  This change was primarily a result of lower distribution expenses due to the aforementioned fee-waiver-related reductions and lower average money market managed assets and the aforementioned impairment charges recorded in Q1 2009.

Q1 2010 vs. Q4 2009

Compared to the prior quarter, revenue decreased by $31.8 million or 12 percent. The decrease in revenue primarily reflects a $12.0 million increase (to $69.5 million from $57.5 million for Q4 2009) in voluntary fee waivers on certain money market funds in order to maintain positive or zero net yields.  This increase in fee waivers was largely offset by a related decrease in distribution expenses of $9.1 million (to $51.7 million from $42.6 million) such that the net impact on operating income was a decrease of $2.9 million (to $17.8 million from $14.9 million) compared to the prior quarter.  In addition, revenue decreased due to lower average money market managed assets and the impact of two fewer days in Q1 2010 compared to Q4 2009.  These decreases were partially offset by the impact of increased average fixed-income and equity managed assets.

Compared to Q4 2009, operating expenses decreased by $17.3 million or 10 percent.  Changes from the prior period include a decrease in distribution expenses primarily as a result of the aforementioned fee-waiver-related reductions and lower average money market fund assets.

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 produce positive or zero net yields in Q2 2010 are expected to begin to decrease, but could vary significantly based on market conditions.  The amount of these waivers will be determined by a variety of factors including available yields on instruments held by the money market funds, changes in assets within money market funds, actions by the Federal Reserve and the U.S. Department of the Treasury, 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.

Federated will host an earnings conference call at 9 a.m. Eastern on Friday, April 23, 2010.  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 Us section of http://FederatedInvestors.com.  A replay will be available after 12:30 p.m. and until April 30, 2010 by calling 877-660-6853 (domestic) or 201-612-7415 (international) and entering codes 286 and 348713.

Federated Investors, Inc. is one of the largest investment managers in the United States, managing nearly $350 billion in assets as of March 31, 2010.  With 137 funds and a variety of separately managed account options, Federated provides comprehensive investment management to nearly 5,300 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 6 percent of fixed-income fund managers and the top 8 percent of equity fund managers(1).  For more information, visit http://FederatedInvestors.com.

(1) Strategic Insight, Feb. 28, 2010.  Based on assets under management in open-end funds.

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.

Certain statements in this press release, such as those related to the level of fee waivers incurred by the company, asset flows and new mandates 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 asset flows and to win new mandates, both of 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.

SOURCE Federated Investors, Inc.