Federated Investors Inc. (FII - Analyst Report) reported fourth quarter 2012 earnings per share of 48 cents, marching ahead of the Zacks Consensus Estimate by 8 cents. The earnings also compared favorably with the prior-year quarter’s earnings of 36 cents, though it was below the prior quarter’s earnings of 54 cents.
Better-than-expected results were driven by higher top-line growth, aided by decline in voluntary fee waivers. Moreover, a rise in total assets under management, primarily driven by escalated fixed income assets were the positives for the quarter. Yet, results were partially impacted by elevated operating expenses.
Including reduction in earnings per share due to the use of the two-class method of computing related with the special dividend paid in the fourth quarter, net income came in at $49.6 million or 44 cents per share.
For full year 2012, net income was $188.1 million or $1.79 per share, up from $150.9 million or $1.45 per share in the prior year. Full year earnings per share surpassed the Zacks Consensus Estimate by 6 cents.
Performance in Detail
Total revenue climbed 13% year over year and 3% sequentially to $244.8 million. The year-over-year upsurge was driven by a decline in voluntary fee waivers and enhanced fixed-income and equity assets. Moreover, the sequential uptick reflected an increase in total average assets. Yet, the reported revenues were below the Zacks Consensus Estimate of $252 million.
For full year 2012, total revenue was $945.7 million, up 6% year over year. However, the revenues missed the Zacks Consensus Estimate of $975.0 million.
During the reported quarter, Federated derived 47% of its revenues from money market assets, 52% from fluctuating assets (30% from equity assets and 22% from fixed-income assets) and the remaining 1% from other products and services.
Total operating expenses jumped 5% year over year and 9% sequentially to $161.6 million in the quarter. The rise in expenses primarily reflects higher distribution costs and increased travel and related expenses.
As of Dec 31, 2012, total AUM was $379.8 billion, up 3% from $369.7 billion as of Dec 31, 2011 and up 4% from $364.1 billion as of Sep 30, 2012. Average managed assets were $368.7 billion, up 3% from $358.3 billion in the prior-year quarter and up 2% from $361.1 billion in the prior quarter.
At quarter end, fixed-income assets improved 18% year over year and 3% sequentially to record $52.7 billion. Equity assets came in at $35 billion, rising 13% year over year, but down slightly on a sequential basis.
However, money market mutual fund assets were $255.7 billion, marginally down on a year-over-year basis, but up 4% sequentially. Money market assets in both funds and separate accounts were $284.7 billion, slightly down on a year-over-year basis, but up 6% sequentially.
As of Dec 31, 2012, cash and other investments were $258.6 million, down from $322.3 million as of Dec 31, 2011. Total long-term debt was $405.0 million, down from $429.2 million as of Dec 31, 2011.
Capital Deployment Update
For full year 2012, Federated repurchased 321,687 shares of Federated class B common stock for $6.3 million. Notably, in the fourth quarter, the company repurchased 50,000 shares of Federated class B common stock for $1.0 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 Feb 15, 2013 to shareholders of record as of Feb 8, 2013.
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 bolster profitability.
However, persistent regulatory pressures, slow global economic growth and a low-interest rate environment is expected keep Federated’s earnings under pressure in the upcoming quarters.
Shares of Federated currently carry a Zacks Rank #3 (Hold).
Among peers, Invesco Ltd. (IVZ - Analyst Report) and The Blackstone Group LP (BX - Analyst Report) are expected to release fourth quarter earnings on Jan 31, while Franklin Resources Inc. (BEN - Analyst Report) will report fiscal first quarter 2013 results on Feb 1.