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Waddell & Reed Financial Inc.’s second-quarter 2017 adjusted earnings of 39 cents per share surpassed the Zacks Consensus Estimate of 37 cents. However, it compared unfavorably with the year-ago quarter’s adjusted earnings of 58 cents.
Results benefitted from a decline in operating expenses. However, lower revenues were a headwind. Also, despite higher gross sales, as well as a fall in net outflows during the quarter, assets under management (AUM) continued to decline. Nevertheless, a solid balance sheet position was a positive for the company.
After considering some non-recurring items, net income attributable to Waddell & Reed totaled $23.3 million or 28 cents per share compared with nearly $33.7 million or 41 cents per share in the prior-year quarter.
Revenues, Expenses & AUM Decline
Operating revenues for the quarter decreased 10.2% year over year to $286.7 million, reflecting a decline in all components. However, it marginally surpassed the Zacks Consensus Estimate of $285.7 million.
Gross sales increased 17.4% year over year to $3.30 billion. Redemptions declined 54.2% year over year to $5.76 billion. Also, net outflows were $2.46 billion at the quarter end, down from $9.76 billion at the end of the prior-year quarter.
Operating expenses decreased 11.2% year over year to $235.8 million. The decline was primarily due to a fall in underwriting and distribution expenses, and compensation and related costs.
Operating margin was 17.8%, increasing from 16.8% a year ago.
As of Jun 30, 2017, AUM totaled $80.43 billion, reflecting a decline of nearly 7% from the Jun 30, 2016 level.
As of Jun 30, 2017, the company’s cash and cash equivalents as well as investment securities totaled $929.8 million. Long-term debt was $94.7 million and stockholders’ equity was $844.2 million.
Performance of the Distribution Channels
At the Retail Broker-Dealer channel, gross sales increased 4.4% year over year to $1.14 billion. However, net outflows totaled $911 million, increasing from the year-ago quarter’s figure of $398 million.
At the Retail Unaffiliated Distribution channel, gross sales increased 36.3% year over year to $2.08 billion. Also, net outflows were $571 million, declining 85.3% year over year.
Gross sales at the Institutional channel were $78 million, declining 58.9% from the year-ago quarter. The segment witnessed net outflows of $973 million, declining 82.2% from the prior-year quarter.
Capital Deployment
Waddell & Reed bought back 237,472 shares for approximately $4 million during the quarter. The company returned a total of $42.5 million to its shareholders in the form of dividends and share repurchases during the quarter.
Our Viewpoint
Waddell & Reed has been facing continued pressure on its revenues, which is expected to hamper its financials in the near term. A declining trend in AUM is another key concern. Although the company is taking initiatives through Project E to boost its top line, it will take a while to witness a rebound. Nevertheless, a consistent decline in expenses continues to be a positive for the company. Also, its continued investments in the Retail-Broker Dealer channel might help boost revenues and AUM, going forward.
Waddell & Reed Financial, Inc. Price, Consensus and EPS Surprise
The Blackstone Group L.P. (BX - Free Report) reported second-quarter 2017 economic net income (ENI) of 59 cents per share, which lagged the Zacks Consensus Estimate of 62 cents. An increase in expenses was the major headwind. However, the quarter also witnessed a rise in revenues.
BlackRock, Inc. (BLK - Free Report) reported second-quarter 2017 adjusted earnings of $5.24 per share, which lagged the Zacks Consensus Estimate of $5.39. A rise in operating expenses and lower investment advisory performance fees hurt results. However, increase in investment advisory, administration fees and securities lending revenues, along with growth in AUM acted as tailwinds.
Lazard Ltd.’s (LAZ - Free Report) second-quarter 2017 adjusted earnings of 98 cents per share comfortably surpassed the Zacks Consensus Estimate of 80 cents. Strong top-line performance and growth in AUM were positives. However, escalating expenses were a major drag.
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Waddell & Reed's (WDR) Q2 Earnings & Revenues Beat Estimates
Waddell & Reed Financial Inc.’s second-quarter 2017 adjusted earnings of 39 cents per share surpassed the Zacks Consensus Estimate of 37 cents. However, it compared unfavorably with the year-ago quarter’s adjusted earnings of 58 cents.
Results benefitted from a decline in operating expenses. However, lower revenues were a headwind. Also, despite higher gross sales, as well as a fall in net outflows during the quarter, assets under management (AUM) continued to decline. Nevertheless, a solid balance sheet position was a positive for the company.
After considering some non-recurring items, net income attributable to Waddell & Reed totaled $23.3 million or 28 cents per share compared with nearly $33.7 million or 41 cents per share in the prior-year quarter.
Revenues, Expenses & AUM Decline
Operating revenues for the quarter decreased 10.2% year over year to $286.7 million, reflecting a decline in all components. However, it marginally surpassed the Zacks Consensus Estimate of $285.7 million.
Gross sales increased 17.4% year over year to $3.30 billion. Redemptions declined 54.2% year over year to $5.76 billion. Also, net outflows were $2.46 billion at the quarter end, down from $9.76 billion at the end of the prior-year quarter.
Operating expenses decreased 11.2% year over year to $235.8 million. The decline was primarily due to a fall in underwriting and distribution expenses, and compensation and related costs.
Operating margin was 17.8%, increasing from 16.8% a year ago.
As of Jun 30, 2017, AUM totaled $80.43 billion, reflecting a decline of nearly 7% from the Jun 30, 2016 level.
As of Jun 30, 2017, the company’s cash and cash equivalents as well as investment securities totaled $929.8 million. Long-term debt was $94.7 million and stockholders’ equity was $844.2 million.
Performance of the Distribution Channels
At the Retail Broker-Dealer channel, gross sales increased 4.4% year over year to $1.14 billion. However, net outflows totaled $911 million, increasing from the year-ago quarter’s figure of $398 million.
At the Retail Unaffiliated Distribution channel, gross sales increased 36.3% year over year to $2.08 billion. Also, net outflows were $571 million, declining 85.3% year over year.
Gross sales at the Institutional channel were $78 million, declining 58.9% from the year-ago quarter. The segment witnessed net outflows of $973 million, declining 82.2% from the prior-year quarter.
Capital Deployment
Waddell & Reed bought back 237,472 shares for approximately $4 million during the quarter. The company returned a total of $42.5 million to its shareholders in the form of dividends and share repurchases during the quarter.
Our Viewpoint
Waddell & Reed has been facing continued pressure on its revenues, which is expected to hamper its financials in the near term. A declining trend in AUM is another key concern. Although the company is taking initiatives through Project E to boost its top line, it will take a while to witness a rebound. Nevertheless, a consistent decline in expenses continues to be a positive for the company. Also, its continued investments in the Retail-Broker Dealer channel might help boost revenues and AUM, going forward.
Waddell & Reed Financial, Inc. Price, Consensus and EPS Surprise
Waddell & Reed Financial, Inc. Price, Consensus and EPS Surprise | Waddell & Reed Financial, Inc. Quote
Currently, Waddell & Reed carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Other Investment Managers
The Blackstone Group L.P. (BX - Free Report) reported second-quarter 2017 economic net income (ENI) of 59 cents per share, which lagged the Zacks Consensus Estimate of 62 cents. An increase in expenses was the major headwind. However, the quarter also witnessed a rise in revenues.
BlackRock, Inc. (BLK - Free Report) reported second-quarter 2017 adjusted earnings of $5.24 per share, which lagged the Zacks Consensus Estimate of $5.39. A rise in operating expenses and lower investment advisory performance fees hurt results. However, increase in investment advisory, administration fees and securities lending revenues, along with growth in AUM acted as tailwinds.
Lazard Ltd.’s (LAZ - Free Report) second-quarter 2017 adjusted earnings of 98 cents per share comfortably surpassed the Zacks Consensus Estimate of 80 cents. Strong top-line performance and growth in AUM were positives. However, escalating expenses were a major drag.
More Stock News: Tech Opportunity Worth $386 Billion in 2017
From driverless cars to artificial intelligence, we've seen an unsurpassed growth of high-tech products in recent months. Yesterday's science-fiction is becoming today's reality. Despite all the innovation, there is a single component no tech company can survive without. Demand for this critical device will reach $387 billion this year alone, and it's likely to grow even faster in the future.
Zacks has released a brand-new Special Report to help you take advantage of this exciting investment opportunity. Most importantly, it reveals 4 stocks with massive profit potential. See these stocks now>>