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Federated Investors, Inc. Reports Third Quarter 2017 Earnings

PITTSBURGH, Oct. 26, 2017 /PRNewswire/ -- Federated Investors, Inc. (NYSE: FII), one of the nation's largest investment managers, today reported earnings per diluted share (EPS) of $0.56 for Q3 2017, compared to $0.54 for the same quarter last year on net income of $56.4 million for Q3 2017, compared to $54.9 million for Q3 2016. Federated reported YTD 2017 EPS of $1.57, compared to $1.48 for the same period in 2016 on YTD 2017 net income of $159.5 million compared to $153.1 million for the same period last year.

Federated's total managed assets were $363.7 billion at Sept. 30, 2017, down $0.6 billion from $364.3 billion at Sept. 30, 2016 and up $3.3 billion or 1 percent from $360.4 billion at June 30, 2017. Lower money market assets were partially offset by higher equity and fixed-income assets at the end of Q3 2017 compared to the end of Q3 2016. Average managed assets for Q3 2017 were $360.5 billion, down $4.9 billion or 1 percent from $365.4 billion reported for Q3 2016 and up $0.5 billion from $360.0 billion reported for Q2 2017.

"At the end of the third quarter, 85 percent of Federated's rated domestic bond-fund assets had outperformed their category averages on a one-year basis," said J. Christopher Donahue, president and chief executive officer. "Federated continued to see positive flows in our flagship multisector bond fund, the $7.5 billion Federated Total Return Bond Fund, a strategy that incorporates our firm's highest-conviction ideas about different fixed-income asset classes."

Federated's board of directors declared a dividend of $0.25 per share. The dividend is payable on Nov. 15, 2017 to shareholders of record as of Nov. 8, 2017. During Q3 2017, Federated purchased 551,224 shares of Federated class B common stock for $14.1 million.

Federated's equity assets were a record $67.1 billion at Sept. 30, 2017, up $3.0 billion or 5 percent from $64.1 billion at Sept. 30, 2016 and up $1.3 billion or 2 percent from $65.8 billion at June 30, 2017. Assets in Federated's domestic and international Strategic Value Dividend strategies were a record $40.6 billion at Sept. 30, 2017, up $2.3 billion or 6 percent from $38.3 billion at Sept. 30, 2016 and up $0.6 billion or 2 percent from $40.0 billion at June 30, 2017. Top-selling equity funds during Q3 2017 on a net basis were led by Federated MDT Small Cap Core Fund, Federated MDT Small Cap Growth Fund, Federated International Leaders Fund and Federated Kaufmann Small Cap Fund.

Federated's fixed-income assets were $52.8 billion at Sept. 30, 2017, up $1.0 billion or 2 percent from $51.8 billion at Sept. 30, 2016 and up $0.3 billion or 1 percent from $52.5 billion at June 30, 2017. Top-selling fixed-income funds during Q3 2017 on a net basis included Federated Total Return Bond Fund, Federated Institutional High Yield Bond Fund and various short-duration strategies.

Money market assets were $243.8 billion at Sept. 30, 2017, down $4.6 billion or 2 percent from $248.4 billion at Sept. 30, 2016 and up $1.7 billion or 1 percent from $242.1 billion at June 30, 2017. Money market fund assets were $177.9 billion at Sept. 30, 2017, down $31.5 billion or 15 percent from $209.4 billion at Sept. 30, 2016 and up $4.6 billion or 3 percent from $173.3 billion at June 30, 2017. Since Sept. 30, 2016, approximately $21 billion in money market assets have transitioned from Federated funds to Federated separate accounts. Federated's money market separate account assets were $66.0 billion at Sept. 30, 2017, up $27.0 billion or 69 percent from $39.0 billion at Sept. 30, 2016 and down $2.8 billion or 4 percent from $68.8 billion at June 30, 2017.

Financial Summary

Q3 2017 vs. Q3 2016

Revenue decreased by $16.3 million or 6 percent primarily due to lower average money market assets and a decrease in revenue resulting from a change in a customer relationship. The decrease in revenue was partially offset by a decrease in voluntary fee waivers related to certain money market funds in order for those funds to maintain positive or zero net yields (voluntary yield-related fee waivers) and an increase in revenue from higher average equity and fixed-income assets.

During Q3 2017, 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 $16.4 million or 8 percent primarily due to a decrease in distribution expenses related to lower average money market fund assets and a change in a customer relationship, partially offset by an increase in distribution expenses related to a decrease in voluntary yield-related fee waivers. The decrease in operating expenses is also attributable to a decrease in compensation and related expenses resulting from lower incentive compensation.

Q3 2017 vs. Q2 2017

Revenue increased $5.5 million or 2 percent primarily due to having one more day in Q3 2017 vs. Q2 2017 and an increase in revenue from higher average equity assets.

YTD 2017 vs. YTD 2016

Revenue decreased by $28.9 million or 3 percent primarily due to a decrease in revenue from lower average money market assets and a decrease in revenue resulting from a change in a customer relationship. The decrease in revenue was partially offset by a decrease in voluntary yield-related fee waivers and an increase in revenue from higher average equity and fixed-income assets.

For the first nine months of 2017, Federated derived 59 percent of its revenue from equity and fixed-income assets (42 percent from equity assets and 17 percent from fixed-income assets) and 41 percent from money market assets.

Operating expenses decreased by $28.7 million or 5 percent primarily due to a decrease in distribution expenses related to lower average money market fund assets and a change in a customer relationship, partially offset by an increase in distribution expenses related to a decrease in voluntary yield-related fee waivers. The decrease in operating expenses is also attributable to a decrease in compensation and related expenses resulting from lower incentive compensation.

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 Oct. 27, 2017. 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 Oct. 27, 2017 until Nov. 3, 2017 by calling 877-481-4010 (domestic) or 919-882-2331 (international) and entering access code 20651. 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 $363.7 billion in assets as of Sept. 30, 2017. With 119 funds and a variety of separately managed account options, Federated provides comprehensive investment management to approximately 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 11 percent of fixed-income fund managers1. Federated also ranks as the fifth-largest SMA manager2. For more information, visit FederatedInvestors.com.

###

1) Strategic Insight, Sept. 30, 2017. Based on assets under management in open-end funds.
2) Money Management Institute/Dover Financial Research, Q2 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, fee arrangements with customers 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.

Unaudited Condensed Consolidated Statements of Income

(in thousands, except per share data)








Quarter Ended

% Change
Q3 2016 to
Q3 2017


Quarter Ended

% Change
Q2 2017 to
Q3 2017


Sept. 30, 2017

Sept. 30, 2016


June 30, 2017

Revenue







Investment advisory fees, net

$

184,886


$

197,253


(6)

%


$

179,322


3

%

Administrative service fees, net—affiliates

47,461


53,577


(11)



45,601


4


Other service fees, net

45,560


42,734


7



47,442


(4)


Other, net

408


1,056


(61)



431


(5)


Total Revenue

278,315


294,620


(6)



272,796


2









Operating Expenses







Distribution

84,838


98,740


(14)



87,174


(3)


Compensation and related

72,454


75,731


(4)



71,370


2


Systems and communications

7,992


7,763


3



8,041


(1)


Office and occupancy

7,293


6,660


10



7,161


2


Professional service fees

6,563


7,360


(11)



5,728


15


Travel and related

3,258


3,165


3



2,958


10


Advertising and promotional

2,345


3,371


(30)



3,095


(24)


Other

4,882


3,194


53



3,058


60


Total Operating Expenses

189,625


205,984


(8)



188,585


1


Operating Income

88,690


88,636


0



84,211


5









Nonoperating Income (Expenses)







Investment income, net

3,556


3,889


(9)



3,937


(10)


Debt expense

(1,250)


(1,039)


20



(1,182)


6


Other, net

1


19


(95)



(33)


103


Total Nonoperating Income, net

2,307


2,869


(20)



2,722


(15)


Income before income taxes

90,997


91,505


(1)



86,933


5


Income tax provision

33,756


32,597


4



32,274


5


Net income including the noncontrolling interests in subsidiaries

57,241


58,908


(3)



54,659


5


Less: Net income attributable to the noncontrolling interests in subsidiaries

802


3,983


(80)



1,208


(34)


Net Income

$

56,439


$

54,925


3

%


$

53,451


6

%








Amounts Attributable to Federated Investors, Inc.







Earnings Per Share1







Basic and diluted

$

0.56


$

0.54


4

%


$

0.53


6

%

Weighted-average shares outstanding







Basic

97,128


98,805




97,581



Diluted

97,129


98,806




97,582



Dividends declared per share

$

0.25


$

0.25




$

0.25





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 earnings per share under the "two-class method." As such, total net income of $2.2 million, $2.0 million and $2.2 million available to unvested restricted shareholders for the quarterly periods ended Sept. 30, 2017, Sept. 30, 2016 and June 30, 2017, respectively, was excluded from the computation of earnings per share.

Unaudited Condensed Consolidated Statements of Income

(in thousands, except per share data)





Nine Months Ended



Sept. 30, 2017

Sept. 30, 2016

% Change

Revenue




Investment advisory fees, net

$

545,525


$

571,762


(5)

%

Administrative service fees, net—affiliates

139,763


160,181


(13)


Other service fees, net

138,054


118,575


16


Other, net

1,270


2,949


(57)


Total Revenue

824,612


853,467


(3)






Operating Expenses




Distribution

262,371


281,862


(7)


Compensation and related

217,226


227,726


(5)


Systems and communications

24,258


23,395


4


Office and occupancy

21,805


20,223


8


Professional service fees

18,971


19,886


(5)


Travel and related

9,150


9,727


(6)


Advertising and promotional

8,396


10,751


(22)


Other

11,761


9,036


30


Total Operating Expenses

573,938


602,606


(5)


Operating Income

250,674


250,861


0






Nonoperating Income (Expenses)




Investment income, net

11,707


7,657


53


Debt expense

(3,534)


(3,118)


13


Other, net

(32)


13


(346)


Total Nonoperating Income, net

8,141


4,552


79


Income before income taxes

258,815


255,413


1


Income tax provision

95,888


91,128


5


Net income including the noncontrolling interests in subsidiaries

162,927


164,285


(1)


Less: Net income attributable to the noncontrolling interests in subsidiaries

3,396


11,208


(70)


Net Income

$

159,531


$

153,077


4

%





Amounts Attributable to Federated Investors, Inc.




Earnings Per Share1




Basic and diluted

$

1.57


$

1.48


6

%

Weighted-average shares outstanding




Basic

97,521


99,397



Diluted

97,522


99,398



Dividends declared per share

$

0.75


$

0.75





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 earnings per share under the "two-class method." As such, total net income of $6.3 million and $6.0 million available to unvested restricted shareholders for the nine months ended Sept. 30, 2017 and Sept. 30, 2016, respectively, was excluded from the computation of earnings per share.

Unaudited Condensed Consolidated Balance Sheets



(in thousands)

Sept. 30, 2017

Dec. 31, 2016

Assets



Cash and other investments

$

328,271


$

301,149


Other current assets

57,418


58,611


Intangible assets, net, including goodwill

737,059


733,137


Other long-term assets

58,760


62,210


Total Assets

$

1,181,508


$

1,155,107





Liabilities, Redeemable Noncontrolling Interests and Equity



Current liabilities

$

115,814


$

162,538


Long-term debt

175,000


165,750


Other long-term liabilities

207,906


199,673


Redeemable noncontrolling interests

28,991


31,362


Equity excluding treasury stock

937,279


851,166


Treasury stock

(283,482)


(255,382)


Total Liabilities, Redeemable Noncontrolling Interests and Equity

$

1,181,508


$

1,155,107


Unaudited Changes in Equity and Fixed-Income Fund and Separate Account Assets
(in millions)



Quarter Ended


Nine Months Ended


Sept. 30, 2017

June 30, 2017

Sept. 30, 2016


Sept. 30, 2017

Sept. 30, 2016

Equity funds







Beginning assets

$

37,225


$

37,159


$

37,076



$

36,231


$

34,125


Sales

1,275


1,411


3,011



4,389


9,567


Redemptions

(2,058)


(2,394)


(2,883)



(7,499)


(7,697)


Net (redemptions) sales

(783)


(983)


128



(3,110)


1,870


Net exchanges

(58)


(74)


(26)



(72)


(79)


Acquisition-related

0


0


0



287


0


Market gains and losses1

1,357


1,123


599



4,405


1,861


Ending assets

$

37,741


$

37,225


$

37,777



$

37,741


$

37,777









Equity separate accounts2







Beginning assets

$

28,562


$

27,611


$

24,785



$

26,150


$

19,431


Sales3

1,426


1,852


2,968



5,190


8,474


Redemptions3

(1,343)


(1,835)


(1,262)



(5,172)


(3,644)


Net sales3

83


17


1,706



18


4,830


Net exchanges

0


0


1



0


1


Market gains and losses1

669


934


(155)



3,146


2,075


Ending assets

$

29,314


$

28,562


$

26,337



$

29,314


$

26,337









Total equity2







Beginning assets

$

65,787


$

64,770


$

61,861



$

62,381


$

53,556


Sales3

2,701


3,263


5,979



9,579


18,041


Redemptions3

(3,401)


(4,229)


(4,145)



(12,671)


(11,341)


Net (redemptions) sales3

(700)


(966)


1,834



(3,092)


6,700


Net exchanges

(58)


(74)


(25)



(72)


(78)


Acquisition-related

0


0


0



287


0


Market gains and losses1

2,026


2,057


444



7,551


3,936


Ending assets

$

67,055


$

65,787


$

64,114



$

67,055


$

64,114









Fixed-income funds







Beginning assets

$

40,880


$

40,239


$

38,611



$

39,434


$

37,989


Sales

3,424


3,729


3,641



11,139


10,442


Redemptions

(3,508)


(3,591)


(2,971)



(10,930)


(10,415)


Net (redemptions) sales

(84)


138


670



209


27


Net exchanges

53


10


19



39


(12)


Acquisition-related

0


0


0



148


0


Market gains and losses1

365


493


496



1,384


1,792


Ending assets

$

41,214


$

40,880


$

39,796



$

41,214


$

39,796









Fixed-income separate accounts2







Beginning assets

$

11,627


$

11,541


$

11,714



$

11,880


$

13,130


Sales3

163


277


360



654


704


Redemptions3

(389)


(401)


(284)



(1,485)


(2,717)


Net (redemptions) sales3

(226)


(124)


76



(831)


(2,013)


Net exchanges

0


0


0



(56)


0


Market gains and losses1

157


210


258



565


931


Ending assets

$

11,558


$

11,627


$

12,048



$

11,558


$

12,048









Total fixed income2







Beginning assets

$

52,507


$

51,780


$

50,325



$

51,314


$

51,119


Sales3

3,587


4,006


4,001



11,793


11,146


Redemptions3

(3,897)


(3,992)


(3,255)



(12,415)


(13,132)


Net (redemptions) sales3

(310)


14


746



(622)


(1,986)


Net exchanges

53


10


19



(17)


(12)


Acquisition-related

0


0


0



148


0


Market gains and losses1

522


703


754



1,949


2,723


Ending assets

$

52,772


$

52,507


$

51,844



$

52,772


$

51,844




1)

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.

2)

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

3)

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 Total Changes in Equity and Fixed-Income Assets
(in millions)



Quarter Ended


Nine Months Ended


Sept. 30, 2017

June 30, 2017

Sept. 30, 2016


Sept. 30, 2017

Sept. 30, 2016








Funds







Beginning assets

$

78,105


$

77,398


$

75,687



$

75,665


$

72,114


Sales

4,699


5,140


6,652



15,528


20,009


Redemptions

(5,566)


(5,985)


(5,854)



(18,429)


(18,112)


Net (redemptions) sales

(867)


(845)


798



(2,901)


1,897


Net exchanges

(5)


(64)


(7)



(33)


(91)


Acquisition-related

0


0


0



435


0


Market gains and losses1

1,722


1,616


1,095



5,789


3,653


Ending assets

$

78,955


$

78,105


$

77,573



$

78,955


$

77,573









Separate accounts2







Beginning assets

$

40,189


$

39,152


$

36,499



$

38,030


$

32,561


Sales3

1,589


2,129


3,328



5,844


9,178


Redemptions3

(1,732)


(2,236)


(1,546)



(6,657)


(6,361)


Net (redemptions) sales3

(143)


(107)


1,782



(813)


2,817


Net exchanges

0


0


1



(56)


1


Market gains and losses1

826


1,144


103



3,711


3,006


Ending assets

$

40,872


$

40,189


$

38,385



$

40,872


$

38,385









Total assets2







Beginning assets

$

118,294


$

116,550


$

112,186



$

113,695


$

104,675


Sales3

6,288


7,269


9,980



21,372


29,187


Redemptions3

(7,298)


(8,221)


(7,400)



(25,086)


(24,473)


Net (redemptions) sales3

(1,010)


(952)


2,580



(3,714)


4,714


Net exchanges

(5)


(64)


(6)



(89)


(90)


Acquisition-related

0


0


0



435


0


Market gains and losses1

2,548


2,760


1,198



9,500


6,659


Ending assets

$

119,827


$

118,294


$

115,958



$

119,827


$

115,958




1)

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.

2)

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

3)

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)

Sept. 30, 2017

June 30, 2017

March 31, 2017

Dec. 31, 2016

Sept. 30, 2016

By Asset Class






Equity

$

67,055


$

65,787


$

64,770


$

62,381


$

64,114


Fixed-income

52,772


52,507


51,780


51,314


51,844


Money market

243,840


242,096


245,198


252,213


248,366


Total Managed Assets

$

363,667


$

360,390


$

361,748


$

365,908


$

364,324


By Product Type






Funds:






Equity

$

37,741


$

37,225


$

37,159


$

36,231


$

37,777


Fixed-income

41,214


40,880


40,239


39,434


39,796


Money market

177,865


173,338


175,232


206,411


209,382


Total Fund Assets

$

256,820


$

251,443


$

252,630


$

282,076


$

286,955


Separate Accounts:






Equity

$

29,314


$

28,562


$

27,611


$

26,150


$

26,337


Fixed-income

11,558


11,627


11,541


11,880


12,048


Money market

65,975


68,758


69,966


45,802


38,984


Total Separate Account Assets

$

106,847


$

108,947


$

109,118


$

83,832


$

77,369


Total Managed Assets

$

363,667


$

360,390


$

361,748


$

365,908


$

364,324



Unaudited Average Managed Assets

Quarter Ended

(in millions)

Sept. 30, 2017

June 30, 2017

March 31, 2017

Dec. 31, 2016

Sept. 30, 2016

By Asset Class






Equity

$

66,127


$

65,399


$

63,780


$

62,575


$

63,682


Fixed-income

52,631


52,291


51,802


51,526


51,446


Money market

241,749


242,298


247,591


244,197


250,292


Total Avg. Managed Assets

$

360,507


$

359,988


$

363,173


$

358,298


$

365,420


By Product Type






Funds:






Equity

$

37,301


$

37,325


$

36,957


$

36,667


$

37,902


Fixed-income

40,967


40,670


40,086


39,571


39,527


Money market

174,358


172,626


182,418


203,474


213,078


Total Avg. Fund Assets

$

252,626


$

250,621


$

259,461


$

279,712


$

290,507


Separate Accounts:






Equity

$

28,826


$

28,074


$

26,823


$

25,908


$

25,780


Fixed-income

11,664


11,621


11,716


11,955


11,919


Money market

67,391


69,672


65,173


40,723


37,214


Total Avg. Separate Account Assets

$

107,881


$

109,367


$

103,712


$

78,586


$

74,913


Total Avg. Managed Assets

$

360,507


$

359,988


$

363,173


$

358,298


$

365,420


Unaudited Average Managed Assets


Nine Months Ended

(in millions)


Sept. 30, 2017


Sept. 30, 2016

By Asset Class





Equity


$

65,102



$

58,383


Fixed-income


52,242



51,039


Money market


243,879



255,063


Total Avg. Managed Assets


$

361,223



$

364,485


By Product Type





Funds:





Equity


$

37,194



$

35,572


Fixed-income


40,575



38,505


Money market


176,467



217,384


Total Avg. Fund Assets


$

254,236



$

291,461


Separate Accounts:





Equity


$

27,908



$

22,811


Fixed-income


11,667



12,534


Money market


67,412



37,679


Total Avg. Separate Account Assets


$

106,987



$

73,024


Total Avg. Managed Assets


$

361,223



$

364,485


View original content:http://www.prnewswire.com/news-releases/federated-investors-inc-reports-third-quarter-2017-earnings-300544445.html

SOURCE Federated Investors, Inc.