Federated Investors Inc.
) reported second-quarter 2012 earnings per share of 39 cents,
falling short of the Zacks Consensus Estimate by a penny. Earnings
were also lower than the prior-year quarter's earnings by 2 cents.
Results were impacted by escalated operating expenses. Yet higher
top-line growth and a rise in fixed income and equity assets were
positives for the quarter. Moreover, increased assets under
management (AUM) added fuel to the fire.
Net income in the quarter was $40.4 million, down from $42.4
million reported in the prior-year quarter.
Performance in Detail
Total revenue climbed 3% year over year to $232.1 million, driven
by a decrease in voluntary fee waivers and enhanced fixed-income
assets. This upside was partially offset by a fall in revenue
related to changes in equity asset mix. Revenue reported was below
the Zacks Consensus Estimate of $243 million.
During the reported quarter, Federated derived 47% of its revenue
from money market assets, 52% from fluctuating assets (31% from
equity assets and 21% from fixed-income assets) and the remaining
1% from other products and services.
Total operating expenses jumped 6% year over year to $163.1 million
in the quarter. The rise in expenses primarily reflects higher
distribution costs and increased compensation and related expense.
As of June 30, 2012, total AUM was $355.9 billion, up 2% from
$349.4 billion as of June 30, 2011. Average managed assets were
$360.6 billion, up 2% from $354.2 billion in the prior-year
At quarter end, fixed-income assets improved 16% year over year to
$49 billion. Equity assets came in at $33.2 billion, rising 6% year
over year. Money market mutual fund assets were $238.6 billion, up
1% year over year. However, money market assets in both funds and
separate accounts were $265.5 billion, slightly down on a
As of June 30, 2012, cash and other investments were $327.1
million, up from $322.3 million at the end of December 2011. Total
long-term debt was $411.5 million, down from $420.4 million as of
December 31, 2011.
Capital Deployment Update
In the second quarter of 2012, Federated repurchased 69,443 shares
of Federated class B common stock for $1.2 million.
Concurrent with the earnings release, the Board of Federated
declared a quarterly dividend of 24 cents per share. The dividend
will be paid on August 15, 2012 to shareholders of record as of
August 8, 2012.
Developments During the Quarter
FEDERATED INVST (FII): Free Stock Analysis
FIFTH THIRD BK (FITB): Free Stock Analysis
JANUS CAP GRP (JNS): Free Stock Analysis Report
TRUSTMARK CP (TRMK): Free Stock Analysis Report
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In June 2012, Federated and
) entered into a deal under which, Federated will acquire assets
worth $903 million from Performance Funds Trust, a wing of
Trustmark. Increased assets under management give Federated various
new fund offerings that would benefit its clients.
In April, Federated entered into an agreement with Cincinnati-based
Fifth Third Bancorp
) to acquire money-market assets worth $5 billion from four Fifth
Third money market funds. These assets will be merged by Federated
into its existing four Federated money market funds with the same
Among Federated's peers,
Janus Capital Group Inc.
) reported second-quarter 2012 earnings per share attributable to
common shareholders of 13 cents, below the Zacks Consensus Estimate
by a penny. Moreover, results compare unfavorably with 15
cents earned in the prior quarter and 23 cents in the year-ago
Lower top-line growth and net outflows came in as dampeners for the
quarter. However, decline in operating expenses reflect better
We believe Federated has the potential for significant growth in
the long run, given its fairly liquid balance sheet and a
diversified asset as well as product mix. Moreover, investors
increased demand for the company's wide range of income-oriented
products will help it to increase profitability.
However, persistent regulatory pressures, slow global economic
growth and a low-interest rate environment will keep Federated's
earnings under pressure in the upcoming quarters.
Shares of Federated currently retain a Zacks #3 Rank, which
translates into a short-term Hold rating. Considering the
fundamentals, we also maintain a Neutral recommendation on the