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Waddell & Reed Financial Inc.’s first-quarter 2018 earnings of 56 cents per share outpaced the Zacks Consensus Estimate of 54 cents. Also, it compared favorably with the year-ago quarter’s earnings of 40 cents.
Results benefited from an improvement in revenues. However, higher expenses were the major headwind. Also, a slight decline in assets under management (AUM) hurt results to quite an extent. Probably because of these negatives, shares of the company declined nearly 8.6%, following the release.
Net income attributable to Waddell & Reed totaled $46.3 million, up 36.8% from the prior-year quarter.
Revenues & Expenses Rise, AUM Falls
Operating revenues in the quarter rose 3.9% year over year to $297.6 million, reflecting rise in investment management fees along with underwriting and distribution fees. Also, the figure surpassed the Zacks Consensus Estimate of $289.7 million.
Gross sales increased 30.1% year over year to $3.80 billion. Redemptions declined 16.7% to $5.25 billion. Also, net outflows were $1.46 billion at the end of the reported quarter, down from $3.39 billion at the end of the prior-year quarter.
Operating expenses increased 1.8% year over year to $237.7 million. The rise was due to higher distribution cost, compensation and benefits expense, depreciation cost and subadvisory fees.
Operating margin was 20.1%, up from 18.5% a year ago.
As of Mar 31, 2018, AUM totaled $80.21 billion, down from $81.08 billion as of Mar 31, 2017.
As of Mar 31, 2018, the company’s cash and cash equivalents as well as investment securities, totaled $819.9 million. Long-term debt was $94.8 million and stockholders’ equity was $889 million.
Performance of Distribution Channels
At the Retail Broker-Dealer channel, gross sales increased 2.4% year over year to $1 billion. Net outflows totaled $1.20 billion, increasing from $1.13 billion in the year-ago quarter.
At the Retail Unaffiliated Distribution channel, gross sales increased 24.8% year over year to $2.25 billion. Also, net outflows were $200 million, down 88% year over year.
Gross sales at the Institutional channel were $552 million, increasing significantly from $142 million in the year-ago quarter. The segment witnessed net outflows of $52 million, significantly down from $585 million witnessed in the prior-year quarter.
Share Repurchases
Waddell & Reed bought back 996.3 million shares for $20.5 million during the reported quarter. The company returned a total of $41.4 million to its shareholders in the form of dividends and share repurchases.
Our Viewpoint
Muted growth in AUM is likely to hamper Waddell & Reed’s financials in the near term. Also, the presence of substantial intangibles on its balance sheet remains a cause of concern. Nevertheless, as the company is making efforts to improve efficiency and optimize operations, expenses are likely to trend lower in the next few quarters, thereby supporting bottom-line growth. Also, its Project E initiatives are likely to boost top-line growth in the long run.
Waddell & Reed Financial, Inc. Price, Consensus and EPS Surprise
BlackRock, Inc.’s (BLK - Free Report) 1Q18 adjusted earnings of $6.70 per share handily outpaced the Zacks Consensus Estimate of $6.42. Results benefited from an improvement in revenues, rise in AUM and steady long-term inflows. However, increase in operating expenses acted as a headwind.
Ameriprise Financial Inc.’s (AMP - Free Report) first-quarter 2018 adjusted operating earnings per share of $3.70 comfortably surpassed the Zacks Consensus Estimate of $3.47. Results benefited from an improvement in revenues. Also, growth in AUM and assets under administration (AUA) supported the earnings. However, rise in expenses was an undermining factor.
The Blackstone Group L.P. (BX - Free Report) reported first-quarter 2018 economic net income of 65 cents per share, which handily surpassed the Zacks Consensus Estimate of 46 cents. The quarter witnessed an improvement in AUM, mainly driven by inflows. However, lower revenues and rise in expenses were the undermining factors.
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Waddell & Reed (WDR) Beats on Q1 Earnings, Stock Falls 8.6%
Waddell & Reed Financial Inc.’s first-quarter 2018 earnings of 56 cents per share outpaced the Zacks Consensus Estimate of 54 cents. Also, it compared favorably with the year-ago quarter’s earnings of 40 cents.
Results benefited from an improvement in revenues. However, higher expenses were the major headwind. Also, a slight decline in assets under management (AUM) hurt results to quite an extent. Probably because of these negatives, shares of the company declined nearly 8.6%, following the release.
Net income attributable to Waddell & Reed totaled $46.3 million, up 36.8% from the prior-year quarter.
Revenues & Expenses Rise, AUM Falls
Operating revenues in the quarter rose 3.9% year over year to $297.6 million, reflecting rise in investment management fees along with underwriting and distribution fees. Also, the figure surpassed the Zacks Consensus Estimate of $289.7 million.
Gross sales increased 30.1% year over year to $3.80 billion. Redemptions declined 16.7% to $5.25 billion. Also, net outflows were $1.46 billion at the end of the reported quarter, down from $3.39 billion at the end of the prior-year quarter.
Operating expenses increased 1.8% year over year to $237.7 million. The rise was due to higher distribution cost, compensation and benefits expense, depreciation cost and subadvisory fees.
Operating margin was 20.1%, up from 18.5% a year ago.
As of Mar 31, 2018, AUM totaled $80.21 billion, down from $81.08 billion as of Mar 31, 2017.
As of Mar 31, 2018, the company’s cash and cash equivalents as well as investment securities, totaled $819.9 million. Long-term debt was $94.8 million and stockholders’ equity was $889 million.
Performance of Distribution Channels
At the Retail Broker-Dealer channel, gross sales increased 2.4% year over year to $1 billion. Net outflows totaled $1.20 billion, increasing from $1.13 billion in the year-ago quarter.
At the Retail Unaffiliated Distribution channel, gross sales increased 24.8% year over year to $2.25 billion. Also, net outflows were $200 million, down 88% year over year.
Gross sales at the Institutional channel were $552 million, increasing significantly from $142 million in the year-ago quarter. The segment witnessed net outflows of $52 million, significantly down from $585 million witnessed in the prior-year quarter.
Share Repurchases
Waddell & Reed bought back 996.3 million shares for $20.5 million during the reported quarter. The company returned a total of $41.4 million to its shareholders in the form of dividends and share repurchases.
Our Viewpoint
Muted growth in AUM is likely to hamper Waddell & Reed’s financials in the near term. Also, the presence of substantial intangibles on its balance sheet remains a cause of concern. Nevertheless, as the company is making efforts to improve efficiency and optimize operations, expenses are likely to trend lower in the next few quarters, thereby supporting bottom-line growth. Also, its Project E initiatives are likely to boost top-line growth in the long run.
Waddell & Reed Financial, Inc. Price, Consensus and EPS Surprise
Waddell & Reed Financial, Inc. Price, Consensus and EPS Surprise | Waddell & Reed Financial, Inc. Quote
Waddell & Reed currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Performance of Other Investment Managers
BlackRock, Inc.’s (BLK - Free Report) 1Q18 adjusted earnings of $6.70 per share handily outpaced the Zacks Consensus Estimate of $6.42. Results benefited from an improvement in revenues, rise in AUM and steady long-term inflows. However, increase in operating expenses acted as a headwind.
Ameriprise Financial Inc.’s (AMP - Free Report) first-quarter 2018 adjusted operating earnings per share of $3.70 comfortably surpassed the Zacks Consensus Estimate of $3.47. Results benefited from an improvement in revenues. Also, growth in AUM and assets under administration (AUA) supported the earnings. However, rise in expenses was an undermining factor.
The Blackstone Group L.P. (BX - Free Report) reported first-quarter 2018 economic net income of 65 cents per share, which handily surpassed the Zacks Consensus Estimate of 46 cents. The quarter witnessed an improvement in AUM, mainly driven by inflows. However, lower revenues and rise in expenses were the undermining factors.
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
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