Federated Investors, Inc. Reports First Quarter 2018 Earnings

PITTSBURGH, April 26, 2018 /PRNewswire/ -- Federated Investors, Inc. (NYSE: FII), one of the nation's largest investment managers, today reported earnings per diluted share (EPS) of $0.60 for Q1 2018, up 22 percent from $0.49 for the same quarter last year on net income of $60.3 million for Q1 2018, compared to $49.6 million for Q1 2017.

Federated's total managed assets were $392.2 billion at March 31, 2018, up $30.5 billion or 8 percent from $361.7 billion at March 31, 2017 and down $5.4 billion or 1 percent from $397.6 billion at Dec. 31, 2017.  Total average managed assets for Q1 2018 were $398.0 billion, up $34.8 billion or 10 percent from $363.2 billion reported for Q1 2017 and up $16.0 billion or 4 percent from $382.0 billion reported for Q4 2017.

"In the first quarter, Federated saw interest in our MDT strategies, which are quantitatively driven equity portfolios designed to be well-diversified while aiming for high alpha and lower volatility compared to the broader market," said J. Christopher Donahue, president and chief executive officer.  "In fixed-income, investors sought a variety of investment solutions that ranged from our stalwart Total Return Bond Fund to shorter-duration strategies, in which investments' interest rates can reset as benchmark rates continue to rise."

Federated's board of directors declared a dividend of $0.27 per share, an 8 percent increase from Q4 2017.  The dividend is payable on May 15, 2018 to shareholders of record as of May 8, 2018.  During Q1 2018, Federated purchased 118,645 shares of Federated class B common stock for $3.9 million.

Federated's equity assets were $64.0 billion at March 31, 2018, down $0.8 billion or 1 percent from $64.8 billion at March 31, 2017 and down $4.1 billion or 6 percent from $68.1 billion at Dec. 31, 2017. Top-selling equity funds during Q1 2018 on a net basis were Federated MDT Small Cap Core Fund, Federated Kaufmann Small Cap Fund, Federated MDT Small Cap Growth Fund, Federated Muni and Stock Advantage Fund and Federated MDT Mid Cap Growth Fund.

Federated's fixed-income assets were $62.3 billion at March 31, 2018, up $10.5 billion or 20 percent from $51.8 billion at March 31, 2017 and down $1.9 billion or 3 percent from $64.2 billion at Dec. 31, 2017.  Top-selling fixed-income funds during Q1 2018 on a net basis included Federated Ultrashort Bond Fund, Federated Total Return Bond Fund, Federated Short-Term Income Fund, Federated Floating Rate Strategic Income Fund and Federated U.S. Government Securities Fund: 1-3 Years.

Money market assets were $265.9 billion at March 31, 2018, up $20.7 billion or 8 percent from $245.2 billion at March 31, 2017 and up $0.7 billion from $265.2 billion at Dec. 31, 2017.  Money market fund assets were $182.4 billion at March 31, 2018, up $7.2 billion or 4 percent from $175.2 billion at March 31, 2017 and down $3.1 billion or 2 percent from $185.5 billion at Dec. 31, 2017.  Federated's money market separate account assets were $83.5 billion at March 31, 2018, up $13.5 billion or 19 percent from $70.0 billion at March 31, 2017 and up $3.8 billion or 5 percent from $79.7 billion at Dec. 31, 2017.

Financial Summary

Q1 2018 revenues and expenses were impacted by Federated's adoption of the new revenue recognition accounting principle (Topic 606), effective Jan. 1, 2018. The primary impact of adoption is that reimbursements or assumptions of fund-related expenses (Consideration Payable to Customers) are now recorded as a reduction of revenue (investment advisory fees, net). Prior to adoption these amounts were recorded in either distribution expense or other expense. Therefore, there was no change to operating income or net income.

The impact of Consideration Payable to Customers on various components of Federated's Consolidated Statements of Income was as follows for the periods presented:

Q1 2018 vs. Q1 2017

Revenue decreased by $9.6 million or 4 percent primarily due to an $8.6 million reduction of revenue for Q1 2018 Consideration Payable to Customers activity as a result of the adoption of the new revenue recognition accounting principle.  Under legacy guidance this amount would have been recorded as $6.7 million of distribution expense and $1.9 million of other expense, as noted above.

During Q1 2018, Federated derived 60 percent of its revenue from equity and fixed-income assets (43 percent from equity assets and 17 percent from fixed-income assets) and 40 percent from money market assets.

Operating expenses decreased by $11.5 million or 6 percent primarily due to an $8.7 million reduction of expenses, as Q1 2017 Consideration Payable to Customers activity was recorded as distribution expense and other expense, while Q1 2018 activity of $8.6 million is recorded as a reduction of revenue as noted above.  Distribution expense was also reduced due to a change in the mix of average money market fund assets and a January 2017 change in a customer relationship.  These decreases were partially offset by higher distribution expense from lower voluntary yield-related fee waivers and an increase in compensation and related expense due primarily to higher incentive compensation expenses.

The income tax provision decreased $10.9 million primarily due to the change in the effective tax rate as a result of the enactment of the Tax Cuts and Jobs Act of 2017 (Tax Act).

Q1 2018 vs. Q4 2017

Revenue decreased $14.5 million or 5 percent primarily due to an $8.6 million reduction of revenue for Q1 2018  Consideration Payable to Customers activity as a result of the adoption of the new revenue recognition accounting principle as noted above, as well as there being two fewer days in the quarter.

Operating expenses decreased by $3.3 million or 2 percent primarily due to a $9.0 million reduction of expenses, as Q4 2017 Consideration Payable to Customers activity was recorded as distribution expense and other expense, while Q1 2018 activity of $8.6 million is recorded as a reduction of revenue as noted above.  The remaining decrease in distribution expense is primarily due to there being two fewer days in the quarter.  These decreases were partially offset by an increase in compensation and related expense due primarily to higher incentive compensation expenses and seasonality in payroll taxes.

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 and mix, product sales and redemptions, market appreciation or depreciation, revenues, fee waivers, expenses and regulatory changes, can significantly impact Federated's business activity levels and financial results.  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 (SEC).

Federated will host an earnings conference call at 9 a.m. Eastern on April 27, 2018.  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 online in real time via the About Federated section of FederatedInvestors.com.  A replay will be available from approximately 12:30 p.m. Eastern April 27, 2018 until May 4, 2018 by calling 877-481-4010 (domestic) or 919-882-2331 (international) and entering access code 27609.  An online replay will be available via FederatedInvestors.com for one year.

Federated Investors, Inc. is one of the largest investment managers in the United States, managing $392.2 billion in assets as of March 31, 2018.  With 108 funds and a variety of separately managed account options, Federated provides comprehensive investment management to more than 8,500 institutions and intermediaries including corporations, government entities, insurance companies, foundations and endowments, banks and broker/dealers.  Federated ranks in the top 6 percent of equity fund managers in the industry, the top 8 percent of money market fund managers and the top 10 percent of fixed-income fund managers¹.  Federated also ranks as the fifth-largest SMA manager².  For more information, visit FederatedInvestors.com.

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1) Strategic Insight, March 31, 2018.  Based on assets under management in open-end funds.
2) Money Management Institute/Dover Financial Research, Q4 2017.
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 adviser.

Certain statements in this press release, such as those related to the level of fee waivers and expenses incurred by the company, performance, investor preferences and demand, asset flows and mix, customer relationships and expenses 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 and expenses in future quarters, sustain product demand, and asset flows and mix, which could vary significantly depending on various factors, such as market conditions, investment performance and investor behavior.  Other risks and uncertainties include the risk factors discussed in the company's annual and quarterly reports as filed with the SEC.  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.

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SOURCE Federated Investors, Inc.