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Waddell & Reed Financial Inc. reported third-quarter 2016 adjusted earnings of 64 cents per share, surpassing the Zacks Consensus Estimate of 51 cents. Also, it compared favorably with the prior-year quarter earnings of 58 cents.
Better-than-expected results were primarily driven by lower expenses. A decline in revenues, elevated outflows and lower assets under management (AUM) were the other undermining factors. These led to a 5.6% decline in the company’s share price, following the announcement of the results.
The results excluded a curtailment gain for the amendment of the post-retirement medical benefit plan, an impairment charge for intangible assets, Project E implementation costs and Department of Labor’s fiduciary’s costs. After considering these, net income totaled $53.8 million, compared with $48.1 million in the prior-year quarter.
Revenues, Expenses & AUM Decline
Operating revenues fell 19.4% year over year to $303.1 million, reflecting a decline in all components. However, it surpassed the Zacks Consensus Estimate of $298.3 million.
Gross sales declined 43.5% year over year to $2.5 billion. Redemptions fell 14% year over year to $7.4 billion. Further, net outflows were $4.9 billion at the quarter end, up from $4.2 billion in the prior-year quarter.
Operating expenses fell 14.2% year over year to $229.3 million. All expense components, except depreciation, goodwill impairment and sub-advisory fees declined.
Operating margin was 24.3%, down from 29% a year ago.
As of Sep 30, 2016, AUM totaled $85.1 billion, down 19.9% from Sep 30, 2015 level. A rise in net outflows, partially offset by market appreciation, was responsible for the decline.
As of Sep 30, 2016, the company’s cash and cash equivalents as well as investment securities totaled $849 million. Moreover, long-term debt totaled $189.6 million and stockholders’ equity was recorded at $845.4 million.
Deteriorating Performance of the Distribution Channels
At Retail Broker-Dealer (previously referred as “Advisors” channel), gross sales decreased 17.3% year over year to $1 billion. Net outflows totaled $712 million, up drastically from the year-ago figure of $269 million.
At Retail Unaffiliated Distribution (previously referred to as "Wholesale” channel), gross sales declined 52.3% year over year to $1.3 billion. Net outflows amounted to $3.3 billion, up 31.8% year over year.
Gross sales at the Institutional channel were $180 million, declining 61.3% from the year-ago quarter. However, the segment witnessed net outflows of $838 million, down 38% from the prior-year quarter.
Share Repurchase
In the reported quarter, Waddell & Reed bought back 28,537 shares for $0.5 million. Overall, the company returned $38.6 million to its shareholders in the form of dividends and share repurchases during the quarter.
Our Viewpoint
Waddell & Reed’s Project E initiative is likely to boost bottom-line growth in the long run. Also, the company’s continued investments in the Retail-Broker Dealer channel will help boost revenues, inflows and AUM, going forward. Further, its capital deployment activities remain impressive, which is likely to enhance shareholder value.
However, declining AUM levels due to rising net outflows remain a major concern.
BlackRock, Inc. (BLK - Free Report) reported third-quarter 2016 adjusted earnings of $5.14 per share, which surpassed the Zacks Consensus Estimate of $5.05. Earnings were better-than-expected primarily due to a decline in total expenses. However, lower revenues acted as a headwind. Nonetheless, AUM experienced a year-over-year rise and the company witnessed strong inflows during the quarter.
Janus Capital Group, Inc. reported third-quarter 2016 adjusted earnings per share of 24 cents, beating the Zacks Consensus Estimate by a penny. Moreover, the bottom-line improved 9.1% from the prior-year quarter tally of 22 cents. However, its stock inched down nearly 4%, despite recording a positive earnings surprise of 4.4% in the quarter.
The Blackstone Group L.P. (BX - Free Report) is scheduled to report third-quarter 2016 earnings results on Oct 27.
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Waddell & Reed's (WDR) Q3 Earnings Beat, Outflows Rise
Waddell & Reed Financial Inc. reported third-quarter 2016 adjusted earnings of 64 cents per share, surpassing the Zacks Consensus Estimate of 51 cents. Also, it compared favorably with the prior-year quarter earnings of 58 cents.
Better-than-expected results were primarily driven by lower expenses. A decline in revenues, elevated outflows and lower assets under management (AUM) were the other undermining factors. These led to a 5.6% decline in the company’s share price, following the announcement of the results.
The results excluded a curtailment gain for the amendment of the post-retirement medical benefit plan, an impairment charge for intangible assets, Project E implementation costs and Department of Labor’s fiduciary’s costs. After considering these, net income totaled $53.8 million, compared with $48.1 million in the prior-year quarter.
Revenues, Expenses & AUM Decline
Operating revenues fell 19.4% year over year to $303.1 million, reflecting a decline in all components. However, it surpassed the Zacks Consensus Estimate of $298.3 million.
Gross sales declined 43.5% year over year to $2.5 billion. Redemptions fell 14% year over year to $7.4 billion. Further, net outflows were $4.9 billion at the quarter end, up from $4.2 billion in the prior-year quarter.
Operating expenses fell 14.2% year over year to $229.3 million. All expense components, except depreciation, goodwill impairment and sub-advisory fees declined.
Operating margin was 24.3%, down from 29% a year ago.
As of Sep 30, 2016, AUM totaled $85.1 billion, down 19.9% from Sep 30, 2015 level. A rise in net outflows, partially offset by market appreciation, was responsible for the decline.
As of Sep 30, 2016, the company’s cash and cash equivalents as well as investment securities totaled $849 million. Moreover, long-term debt totaled $189.6 million and stockholders’ equity was recorded at $845.4 million.
Deteriorating Performance of the Distribution Channels
At Retail Broker-Dealer (previously referred as “Advisors” channel), gross sales decreased 17.3% year over year to $1 billion. Net outflows totaled $712 million, up drastically from the year-ago figure of $269 million.
At Retail Unaffiliated Distribution (previously referred to as "Wholesale” channel), gross sales declined 52.3% year over year to $1.3 billion. Net outflows amounted to $3.3 billion, up 31.8% year over year.
Gross sales at the Institutional channel were $180 million, declining 61.3% from the year-ago quarter. However, the segment witnessed net outflows of $838 million, down 38% from the prior-year quarter.
Share Repurchase
In the reported quarter, Waddell & Reed bought back 28,537 shares for $0.5 million. Overall, the company returned $38.6 million to its shareholders in the form of dividends and share repurchases during the quarter.
Our Viewpoint
Waddell & Reed’s Project E initiative is likely to boost bottom-line growth in the long run. Also, the company’s continued investments in the Retail-Broker Dealer channel will help boost revenues, inflows and AUM, going forward. Further, its capital deployment activities remain impressive, which is likely to enhance shareholder value.
However, declining AUM levels due to rising net outflows remain a major concern.
WADDELL&REED -A Price, Consensus and EPS Surprise
WADDELL&REED -A Price, Consensus and EPS Surprise | WADDELL&REED -A Quote
Currently, Waddell & Reed sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Other Investment Managers
BlackRock, Inc. (BLK - Free Report) reported third-quarter 2016 adjusted earnings of $5.14 per share, which surpassed the Zacks Consensus Estimate of $5.05. Earnings were better-than-expected primarily due to a decline in total expenses. However, lower revenues acted as a headwind. Nonetheless, AUM experienced a year-over-year rise and the company witnessed strong inflows during the quarter.
Janus Capital Group, Inc. reported third-quarter 2016 adjusted earnings per share of 24 cents, beating the Zacks Consensus Estimate by a penny. Moreover, the bottom-line improved 9.1% from the prior-year quarter tally of 22 cents. However, its stock inched down nearly 4%, despite recording a positive earnings surprise of 4.4% in the quarter.
The Blackstone Group L.P. (BX - Free Report) is scheduled to report third-quarter 2016 earnings results on Oct 27.
Confidential from Zacks
Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>.