Federated Investors, Inc. Reports First Quarter 2019 Earnings

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PITTSBURGH, April 25, 2019 /PRNewswire/ -- Federated Investors, Inc. FII, one of the world's largest investment managers, today reported earnings per diluted share (EPS) of $0.54 for Q1 2019, compared to $0.60 for the same quarter last year on net income of $54.5 million for Q1 2019 compared to $60.3 million for Q1 2018.

Federated's total managed assets were a record $484.9 billion at March 31, 2019, up $92.7 billion or 24% from $392.2 billion at March 31, 2018 and up $25.0 billion or 5% from $459.9 billion at Dec. 31, 2018. Total average managed assets for Q1 2019 were $475.4 billion, up $77.4 billion or 19% from $398.0 billion reported for Q1 2018 and up $31.7 billion or 7% from $443.7 billion reported for Q4 2018. The results in this press release include activity of Hermes Fund Managers Limited (Hermes), beginning July 1, 2018.

"Liquidity management products saw strong flows in the first quarter, as Federated's money market funds offered the potential for higher yields than deposit accounts," said J. Christopher Donahue, president and chief executive officer. "Assets in our prime, government and tax-free money market funds were up from the previous quarter, and investors turned to Federated for liquidity management solutions that provide diligent credit analysis, broad diversification and competitive yields."

Federated's board of directors declared a quarterly dividend of $0.27 per share. The dividend is payable on May 15, 2019 to shareholders of record as of May 8, 2019. During Q1 2019, Federated purchased 60,833 shares of Federated class B common stock for $1.5 million.

Federated's equity assets were $80.2 billion at March 31, 2019, up $21.4 billion or 36% from $58.8 billion at March 31, 2018 and up $7.7 billion or 11% from $72.5 billion at Dec. 31, 2018. Top-selling equity funds during Q1 2019 on a net basis were Federated Kaufmann Small Cap Fund, Hermes Global Emerging Markets Fund, Federated MDT Small Cap Growth Fund, Federated MDT Small Cap Core Fund and Federated MDT Mid Cap Growth Fund.

Federated's fixed-income assets were $64.1 billion at March 31, 2019, up $1.9 billion or 3% from $62.2 billion at March 31, 2018 and up $0.9 billion or 1% from $63.2 billion at Dec. 31, 2018. Top-selling fixed-income funds during Q1 2019 on a net basis included Federated Total Return Bond Fund, Federated Municipal Ultrashort Fund, Federated U.S. Government Securities Fund: 1-3 Years, Federated Sterling Cash Plus Fund and Federated Mortgage Fund.

Money market assets were $318.4 billion at March 31, 2019, up $52.5 billion or 20% from $265.9 billion at March 31, 2018 and up $16.6 billion or 6% from $301.8 billion at Dec. 31, 2018. Money market fund assets were $214.8 billion at March 31, 2019, up $32.4 billion or 18% from $182.4 billion at March 31, 2018 and up $6.3 billion or 3% from $208.5 billion at Dec. 31, 2018.  Federated's money market separate account assets were $103.6 billion at March 31, 2019, up $20.1 billion or 24% from $83.5 billion at March 31, 2018 and up $10.3 billion or 11% from $93.3 billion at Dec. 31, 2018.

Financial Summary

Q1 2019 vs. Q1 2018

Revenue increased $43.2 million or 16% primarily due to the consolidation of Hermes' revenue, which included performance fees of $2.8 million, and higher average money market assets. These increases in revenue were partially offset by a decrease in revenue from lower average equity and fixed-income assets (excluding Hermes).

During Q1 2019, Federated derived 61% of its revenue from long-term assets (40% from equity assets, 14% from fixed-income assets and 7% from alternative/private markets and multi-asset), 38% from money market assets and 1% from sources other than managed assets.

Operating expenses increased $52.0 million or 28% primarily due to the consolidation of Hermes' expenses.

Nonoperating income (expenses), net increased $2.4 million primarily due to an increase in the market value of investments.

Q1 2019 vs. Q4 2018

Revenue was down slightly, primarily due to two fewer days in the quarter and lower performance fees, offset by higher average money market assets. Operating expenses increased $16.9 million or 8% primarily due to higher compensation and related expenses resulting from higher incentive compensation and seasonality in payroll taxes, and an increase in distribution expenses primarily due to the increase in money market fund assets.

Nonoperating income (expenses), net increased $7.8 million primarily due to an increase in the market value of investments.

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 26, 2019. 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 section of FederatedInvestors.com. A replay will be available from approximately 12:30 p.m. Eastern on April 26, 2019 until May 3, 2019 by calling 877-481-4010 (domestic) or 919-882-2331 (international) and entering access code 46069. An online replay will be available via FederatedInvestors.com for one year.

Federated Investors, Inc. is a leading global investment manager with $484.9 billion in assets under management as of March 31, 2019. Our investment solutions span 129 equity, fixed-income, alternative/private markets, multi-asset and money market funds and a range of separately managed account strategies. Providing comprehensive investment management to approximately 9,500 institutions and intermediaries, our clients include corporations, government entities, insurance companies, foundations and endowments, banks and broker/dealers. Headquartered in Pittsburgh, Federated's nearly 1,900 employees include those in New York, Boston, London and several other offices worldwide. In 2018, Federated acquired a majority interest in Hermes Investment Management, which provides world-class active management and stewardship services.

Federated ranks in the top 6% of equity fund managers in the industry, the top 7% of money market fund managers and the top 11% of fixed-income fund managers1. Federated also ranks as the 10th-largest SMA manager2.  Information regarding Hermes is available at Hermes-Investment.com. An analyst presentation that includes information about Hermes also is available. For more information, visit FederatedInvestors.com.

###

1) Strategic Insight, March 31, 2019. Based on assets under management in open-end funds.
2) Money Management Institute/Cerulli, Q4 2018.
Federated Securities Corp. is distributor of the Federated funds.
Separately managed accounts are made available through Federated Global Investment Management Corp., Federated Investment Counseling, Federated MDTA LLC, Hermes Investment Management Limited and Hermes European Equities Limited, each a registered investment adviser.

Certain statements in this press release, such as those related to liquidity management solution attributes, performance, investor preferences and demand, and asset flows and mix, 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, predict whether performance fees or carried interest will be earned, 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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Unaudited Condensed Consolidated Statements of Income

(in thousands, except per share data)








Quarter Ended

% Change
Q1 2018 to
Q1 2019


Quarter Ended

% Change
Q4 2018 to
Q1 2019


March 31, 2019

March 31, 2018


Dec. 31, 2018

Revenue







Investment advisory fees, net

$

211,199


$

174,266


21

%


$

213,990


(1)

%

Administrative service fees, net—affiliates

54,135


49,023


10



52,022


4


Other service fees, net

41,716


40,563


3



41,204


1


Total Revenue

307,050


263,852


16



307,216


0









Operating Expenses







Compensation and related

111,216


78,374


42



99,153


12


Distribution

77,632


72,498


7



73,482


6


Systems and communications

12,794


8,433


52



11,528


11


Office and occupancy

11,362


7,541


51



10,384


9


Professional service fees

10,486


9,631


9



10,461


0


Advertising and promotional

4,190


3,228


30



5,174


(19)


Travel and related

3,848


2,821


36



4,627


(17)


Other

4,633


1,655


180



4,453


4


Total Operating Expenses

236,161


184,181


28



219,262


8


Operating Income

70,889


79,671


(11)



87,954


(19)









Nonoperating Income (Expenses)







Investment income (loss), net

2,709


718


277



(1,666)


263


Debt expense

(1,400)


(1,330)


5



(1,522)


(8)


Other, net

324


(143)


327



(2,972)


111


Total Nonoperating Income (Expenses), net

1,633


(755)


316



(6,160)


127


Income before income taxes

72,522


78,916


(8)



81,794


(11)


Income tax provision

17,911


18,910


(5)



20,162


(11)


Net income including the noncontrolling interests in subsidiaries

54,611


60,006


(9)



61,632


(11)


Less: Net income (loss) attributable to the noncontrolling interests in subsidiaries

65


(325)


120



96


(32)


Net Income

$

54,546


$

60,331


(10)

%


$

61,536


(11)

%








Amounts Attributable to Federated Investors, Inc.







Earnings Per Share1







Basic and diluted

$

0.54


$

0.60


(10)

%


$

0.61


(11)

%

Weighted-Average Shares Outstanding







Basic

96,994


97,187




96,758



Diluted

96,995


97,189




96,758



Dividends Declared Per Share

$

0.27


$

0.25




$

0.27





1)

Unvested share-based awards that receive non-forfeitable dividend rights are deemed participating securities and are required to be considered in the computation of basic earnings per share under the "two-class method." As such, total net income of $2.1 million, $2.4 million and $2.3 million available to unvested restricted Federated shareholders for the quarterly periods ended March 31, 2019, March 31, 2018 and Dec. 31, 2018, respectively, was excluded from the computation of basic earnings per share. In addition to the amounts excluded from the basic earnings per share calculation, the computation of diluted earnings per share excludes net income available to unvested shareholders of a nonpublic consolidated subsidiary for the quarterly periods ended March 31, 2019 and Dec. 31, 2018.

 

 

Unaudited Condensed Consolidated Balance Sheets



(in thousands)

March 31, 2019

Dec. 31, 2018

Assets



  Cash and other investments

$

162,111


$

190,490


  Other current assets

116,240


113,611


  Intangible assets, net, including goodwill

1,156,809


1,149,247


  Other long-term assets

200,016


90,335


  Total Assets

$

1,635,176


$

1,543,683





Liabilities, Redeemable Noncontrolling Interests and Equity



  Current liabilities

$

131,692


$

181,180


  Long-term debt

130,000


135,000


  Other long-term liabilities

289,545


187,869


  Redeemable noncontrolling interests

186,200


182,513


  Equity excluding treasury stock

1,174,731


1,144,458


  Treasury stock

(276,992)


(287,337)


  Total Liabilities, Redeemable Noncontrolling Interests and Equity

$

1,635,176


$

1,543,683


 

 

Unaudited Changes in Long-Term Assets - By Asset Class




(in millions)

Quarter Ended


March 31, 2019

Dec. 31, 2018

March 31, 2018

Equity




Beginning assets

$

72,497


$

84,143


$

62,816


Sales1

5,136


4,274


3,193


Redemptions1

(5,926)


(6,777)


(5,258)


Net redemptions1

(790)


(2,503)


(2,065)


Net exchanges

13


(180)


(127)


Impact of foreign exchange2

(122)


0


0


Market gains and losses3

8,647


(8,963)


(1,794)


Ending assets

$

80,245


$

72,497


$

58,830






Fixed Income




Beginning assets

$

63,158


$

65,369


$

64,160


Sales1

5,416


5,330


4,908


Redemptions1

(6,341)


(7,424)


(6,594)


Net redemptions1

(925)


(2,094)


(1,686)


Net exchanges

(33)


214


127


Impact of foreign exchange2

8


0


0


Market gains and losses3

1,899


(331)


(396)


Ending assets

$

64,107


$

63,158


$

62,205






Alternative / Private Markets4




Beginning assets

$

18,318


$

18,621


$

366


Sales1

313


437


41


Redemptions1

(858)


(530)


(67)


Net redemptions1

(545)


(93)


(26)


Net exchanges

(2)


1


1


Impact of foreign exchange2

387


0


0


Market gains and losses3

(304)


(211)


2


Ending assets

$

17,854


$

18,318


$

343






Multi-asset




Beginning assets

$

4,093


$

4,790


$

5,014


Sales1

104


119


128


Redemptions1

(241)


(369)


(235)


Net redemptions1

(137)


(250)


(107)


Net exchanges

2


(23)


0


Market gains and losses3

301


(424)


(64)


Ending assets

$

4,259


$

4,093


$

4,843






Total Long-term Assets4




Beginning assets

$

158,066


$

172,923


$

132,356


Sales1

10,969


10,160


8,270


Redemptions1

(13,366)


(15,100)


(12,154)


Net redemptions1

(2,397)


(4,940)


(3,884)


Net exchanges

(20)


12


1


Impact of foreign exchange2

273


0


0


Market gains and losses3

10,543


(9,929)


(2,252)


Ending assets

$

166,465


$

158,066


$

126,221




1)

For certain accounts, Sales and Redemptions are calculated as the remaining difference between beginning and ending assets after the calculation of total investment return.

2)

Reflects the impact of translating non-U.S. dollar denominated AUM into U.S. dollars for reporting purposes.  Reporting only contains foreign exchange separately beginning with Q1 2019 (previously included in Market gains and losses).

3)

Reflects the approximate changes in the fair value of the securities held by the portfolios and, to a lesser extent, reinvested dividends, distributions, net investment income and the impact of changes in foreign exchange rates for periods prior to Q1 2019.

4)

Includes $8.1 billion and $8.3 billion at March 31, 2019 and Dec. 31, 2018, respectively, of assets managed by a nonconsolidated entity, Hermes GPE LLP, in which Hermes holds an equity method investment.

 

 


Unaudited Changes in Long-Term Assets - By Asset Class and Product Type

(in millions)



Quarter Ended


March 31, 2019


Equity

Fixed Income

Alternative / Private Markets

Multi-asset

Total


Funds

Separate Accounts1

Funds

Separate Accounts1

Funds2

Separate Accounts1

Funds

Separate Accounts1

Funds2

Separate Accounts1

Beginning assets

$

36,584


$

35,913


$

40,490


$

22,668


$

11,365


$

6,953


$

3,920


$

173


$

92,359


$

65,707


Sales

3,412


1,724


4,154


1,262


254


59


102


2


7,922


3,047


Redemptions

(3,003)


(2,923)


(4,726)


(1,615)


(387)


(471)


(235)


(6)


(8,351)


(5,015)


Net sales (redemptions)

409


(1,199)


(572)


(353)


(133)


(412)


(133)


(4)


(429)


(1,968)


Net exchanges

13


0


(8)


(25)


(2)


0


2


0


5


(25)


Impact of foreign exchange3

(15)


(107)


23


(15)


240


147


0


0


248


25


Market gains and losses4

5,066


3,581


1,256


643


(306)


2


283


18


6,299


4,244


Ending assets

$

42,057


$

38,188


$

41,189


$

22,918


$

11,164


$

6,690


$

4,072


$

187


$

98,482


$

67,983




1)

Includes separately managed accounts, institutional accounts, sub-advised funds and other managed products.  For certain accounts, Sales and Redemptions are calculated as the remaining difference between beginning and ending assets after the calculation of total investment return.

2)

Includes $8.1 billion of assets managed by a nonconsolidated entity, Hermes GPE LLP, in which Hermes holds an equity method investment.

3)

Reflects the impact of translating non-U.S. dollar denominated AUM into U.S. dollars for reporting purposes.

4)

Reflects the approximate changes in the fair value of the securities held by the portfolios and, to a lesser extent, reinvested dividends, distributions and net investment income.

 

 


Unaudited Changes in Long-Term Assets - By Product Type

(in millions)

Quarter Ended


March 31, 2019

Dec. 31, 2018

March 31, 2018

Total Fund Assets1




Beginning assets

$

92,359


$

101,437


$

79,301


Sales

7,922


7,868


5,956


Redemptions

(8,351)


(10,375)


(7,634)


Net redemptions

(429)


(2,507)


(1,678)


Net exchanges

5


13


(2)


Impact of foreign exchange2

248


0


0


Market gains and losses3

6,299


(6,584)


(622)


Ending assets

$

98,482


$

92,359


$

76,999






Total Separate Accounts Assets4




Beginning assets

$

65,707


$

71,486


$

53,055


Sales5

3,047


2,292


2,314


Redemptions5

(5,015)


(4,725)


(4,520)


Net redemptions5

(1,968)


(2,433)


(2,206)


Net exchanges

(25)


(1)


3


Impact of foreign exchange2

25


0


0


Market gains and losses3

4,244


(3,345)


(1,630)


Ending assets

$

67,983


$

65,707


$

49,222






Total Long-term Assets1,4




Beginning assets

$

158,066


$

172,923


$

132,356


Sales5

10,969


10,160


8,270


Redemptions5

(13,366)


(15,100)


(12,154)


Net redemptions5

(2,397)


(4,940)


(3,884)


Net exchanges

(20)


12


1


Impact of foreign exchange2

273


0


0


Market gains and losses3

10,543


(9,929)


(2,252)


Ending assets

$

166,465


$

158,066


$

126,221




1)

Includes $8.1 billion and $8.3 billion at March 31, 2019 and Dec. 31, 2018, respectively, of assets managed by a nonconsolidated entity, Hermes GPE LLP, in which Hermes holds an equity method investment.

2)

Reflects the impact of translating non-U.S. dollar denominated AUM into U.S. dollars for reporting purposes.  Reporting only contains foreign exchange separately beginning with Q1 2019 (previously included in Market gains and losses).

3)

Reflects the approximate changes in the fair value of the securities held by the portfolios and, to a lesser extent, reinvested dividends, distributions, net investment income and the impact of changes in foreign exchange rates for periods prior to Q1 2019.

4)

Includes separately managed accounts, institutional accounts, sub-advised funds and other managed products.

5)

For certain accounts, Sales and Redemptions are calculated as the remaining difference between beginning and ending assets after the calculation of total investment return.

 

 

Unaudited Managed Assets

(in millions)

March 31, 2019

Dec. 31, 2018

Sept. 30, 2018

June 30, 2018

March 31, 2018

By Asset Class






Equity

$

80,245


$

72,497


$

84,143


$

57,973


$

58,830


Fixed-income

64,107


63,158


65,369


61,435


62,205


Alternative / private markets1

17,854


18,318


18,621


292


343


Multi-asset

4,259


4,093


4,790


4,730


4,843


Total long-term assets

166,465


158,066


172,923


124,430


126,221


Money market

318,413


301,794


264,233


255,247


265,944


Total Managed Assets

$

484,878


$

459,860


$

437,156


$

379,677


$

392,165








By Product Type






Funds:






Equity

$

42,057


$

36,584


$

43,578


$

31,699


$

31,507


Fixed-income

41,189


40,490


41,817


39,877


40,529


Alternative / private markets1

11,164


11,365


11,457


292


343


Multi-asset

4,072


3,920


4,585


4,521


4,620


Total long-term assets

98,482


92,359


101,437


76,389


76,999


Money market

214,764


208,480


182,966


172,671


182,437


Total Fund Assets

$

313,246


$

300,839


$

284,403


$

249,060


$

259,436


Separate Accounts:






Equity

$

38,188


$

35,913


$

40,565


$

26,274


$

27,323


Fixed-income

22,918


22,668


23,552


21,558


21,676


Alternative / private markets

6,690


6,953


7,164


0


0


Multi-asset

187


173


205


209


223


Total long-term assets

67,983


65,707


71,486


48,041


49,222


Money market

103,649


93,314


81,267


82,576


83,507


Total Separate Account Assets

$

171,632


$

159,021


$

152,753


$

130,617


$

132,729


Total Managed Assets

$

484,878


$

459,860


$

437,156


$

379,677


$

392,165




1)

Includes $8.1 billion, $8.3 billion and $8.4 billion at March 31, 2019, Dec. 31, 2018 and Sept. 30, 2018, respectively, of assets managed by a nonconsolidated entity, Hermes GPE LLP, in which Hermes holds an equity method investment.

 

 

Unaudited Average Managed Assets

Quarter Ended

(in millions)

March 31, 2019

Dec. 31, 2018

Sept. 30, 2018

June 30, 2018

March 31, 2018

By Asset Class






Equity

$

77,554


$

78,084


$

84,262


$

58,818


$

61,555


Fixed-income

64,167


63,881


64,750


61,648


63,538


Alternative / private markets1

18,311


18,410


18,504


319


355


Multi-asset

4,225


4,449


4,805


4,824


4,979


Total long-term assets

164,257


164,824


172,321


125,609


130,427


Money market

311,150


278,885


261,571


260,371


267,546


Total Avg. Managed Assets

$

475,407


$

443,709


$

433,892


$

385,980


$

397,973








By Product Type






Funds:






Equity

$

40,217


$

39,871


$

43,473


$

31,911


$

32,680


Fixed-income

41,095


41,088


41,501


40,199


41,022


Alternative / private markets1

11,545


11,351


11,109


319


355


Multi-asset

4,042


4,268


4,598


4,604


4,749


Total long-term assets

96,899


96,578


100,681


77,033


78,806


Money market

209,260


194,009


179,562


175,885


181,856


Total Avg. Fund Assets

$

306,159


$

290,587


$

280,243


$

252,918


$

260,662


Separate Accounts:






Equity

$

37,337


$

38,213


$

40,789


$

26,907


$

28,875


Fixed-income

23,072


22,793


23,249


21,449


22,516


Alternative / private markets

6,766


7,059


7,395


0


0


Multi-asset

183


181


207


220


230


Total long-term assets

67,358


68,246


71,640


48,576


51,621


Money market

101,890


84,876


82,009


84,486


85,690


Total Avg. Separate Account Assets

$

169,248


$

153,122


$

153,649


$

133,062


$

137,311


Total Avg. Managed Assets

$

475,407


$

443,709


$

433,892


$

385,980


$

397,973




1)

The average balance includes $8.4 billion, $8.3 billion and $8.2 billion for the quarters ended March 31, 2019, Dec. 31, 2018 and Sept. 30, 2018, respectively, of assets managed by a nonconsolidated entity, Hermes GPE LLP, in which Hermes holds an equity method investment.

 

SOURCE Federated Investors, Inc.

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