Waddell & Reed Financial Inc. reported fourth-quarter 2016 adjusted earnings of 48 cents per share, easily surpassing the Zacks Consensus Estimate of 41 cents. However, it compared unfavorably with the year-ago earnings of 76 cents. Notably, results for the prior-year quarter did not include any adjustments.
Lower expenses and a fall in net outflows were primarily aided the results. Also, balance sheet remained strong. However, a decline in revenues and lower assets under management (AUM) were the undermining factors.
After considering certain non-recurring items, net income attributable to Waddell & Reed totaled $22.4 million, compared with $62.9 million in the prior-year quarter.
The company also reported full-year 2016 adjusted earnings of $2.14 per share, surpassing the Zacks Consensus Estimate of $2.11. However, the reported figure was down 27.2% year over year. Also, net income attributable to Waddell & Reed (GAAP basis) came in at $146.9 million, down 40.2% year over year.
Revenues, Expenses & AUM Decline
Operating revenues for the quarter fell 18.9% year over year to $292.9 million, reflecting a decline in all components. However, it surpassed the Zacks Consensus Estimate of $288.8 million.
For 2016, operating revenues came in at $1.24 billion, surpassing the Zacks Consensus Estimate of $1.23 billion. However, the figure was down 18.3% year over year.
Gross sales for the quarter declined 37.3% year over year to $2.72 billion. Redemptions fell 24% year over year to $7.10 billion. However, net outflows were $4.39 billion at the quarter end, down from $5.01 billion at the end of the prior-year quarter.
Operating expenses fell 5.3% year over year to $255.5 million. The decline was primarily due to a fall in underwriting and distribution expenses and general and administrative costs.
Operating margin was 12.8%, down from 25.3% a year ago.
As of Dec 31, 2016, AUM totaled $80.52 billion, down 22.9% from the Dec 31, 2015 level. Market depreciation, partially offset by a fall in net outflows, was responsible for the decline.
As of Dec 31, 2016, the company’s cash and cash equivalents as well as investment securities totaled $883.9 million. Moreover, long-term debt totaled $189.6 million and stockholders’ equity was recorded at $844 million.
Deteriorating Performance of the Distribution Channels
At Retail Broker-Dealer (previously referred as “Advisors” channel), gross sales decreased 9.6% year over year to $1.10 billion. Net outflows totaled $750 million, up drastically from the year-ago figure of $203 million.
At Retail Unaffiliated Distribution (previously referred to as "Wholesale” channel), gross sales declined 41.3% year over year to $1.37 billion. However, net outflows amounted to $3 billion, down 37.2% year over year.
Gross sales at the Institutional channel were $242 million, declining 68.7% from the year-ago quarter. The segment witnessed net outflows of $629 million, up significantly from the prior-year quarter.
Share Repurchase
Waddell & Reed bought back 90,692 shares for $1.8 million during the quarter. Overall, the company returned $39.9 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.
However, declining AUM levels due to net outflows remain a major concern. Also, as the company plans on investing in technology initiatives with an intention to modernize and optimize its operations, expenses might rise.
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
BlackRock, Inc. (BLK - Free Report) reported fourth-quarter 2016 adjusted earnings of $5.14 per share, which handedly surpassed the Zacks Consensus Estimate of $5.02. Moreover, the bottom line came in 8% higher than the year-ago quarter. The better-than-expected number was primarily driven by a decline in total expenses.
Janus Capital Group, Inc. reported fourth-quarter 2016 adjusted earnings per share of 20 cents, lagging the Zacks Consensus Estimate of 24 cents. A fall in revenues and higher expenses were primarily responsible for the lower-than-expected results.
The Blackstone Group L.P. (BX - Free Report) reported fourth-quarter 2016 economic net income of 68 cents per share, which surpassed the Zacks Consensus Estimate of 63 cents. Better-than-expected quarterly results were attributable to a significant increase in revenues.
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Waddell & Reed Financial Inc. reported fourth-quarter 2016 adjusted earnings of 48 cents per share, easily surpassing the Zacks Consensus Estimate of 41 cents. However, it compared unfavorably with the year-ago earnings of 76 cents. Notably, results for the prior-year quarter did not include any adjustments.
Lower expenses and a fall in net outflows were primarily aided the results. Also, balance sheet remained strong. However, a decline in revenues and lower assets under management (AUM) were the undermining factors.
After considering certain non-recurring items, net income attributable to Waddell & Reed totaled $22.4 million, compared with $62.9 million in the prior-year quarter.
The company also reported full-year 2016 adjusted earnings of $2.14 per share, surpassing the Zacks Consensus Estimate of $2.11. However, the reported figure was down 27.2% year over year. Also, net income attributable to Waddell & Reed (GAAP basis) came in at $146.9 million, down 40.2% year over year.
Revenues, Expenses & AUM Decline
Operating revenues for the quarter fell 18.9% year over year to $292.9 million, reflecting a decline in all components. However, it surpassed the Zacks Consensus Estimate of $288.8 million.
For 2016, operating revenues came in at $1.24 billion, surpassing the Zacks Consensus Estimate of $1.23 billion. However, the figure was down 18.3% year over year.
Gross sales for the quarter declined 37.3% year over year to $2.72 billion. Redemptions fell 24% year over year to $7.10 billion. However, net outflows were $4.39 billion at the quarter end, down from $5.01 billion at the end of the prior-year quarter.
Operating expenses fell 5.3% year over year to $255.5 million. The decline was primarily due to a fall in underwriting and distribution expenses and general and administrative costs.
Operating margin was 12.8%, down from 25.3% a year ago.
As of Dec 31, 2016, AUM totaled $80.52 billion, down 22.9% from the Dec 31, 2015 level. Market depreciation, partially offset by a fall in net outflows, was responsible for the decline.
As of Dec 31, 2016, the company’s cash and cash equivalents as well as investment securities totaled $883.9 million. Moreover, long-term debt totaled $189.6 million and stockholders’ equity was recorded at $844 million.
Deteriorating Performance of the Distribution Channels
At Retail Broker-Dealer (previously referred as “Advisors” channel), gross sales decreased 9.6% year over year to $1.10 billion. Net outflows totaled $750 million, up drastically from the year-ago figure of $203 million.
At Retail Unaffiliated Distribution (previously referred to as "Wholesale” channel), gross sales declined 41.3% year over year to $1.37 billion. However, net outflows amounted to $3 billion, down 37.2% year over year.
Gross sales at the Institutional channel were $242 million, declining 68.7% from the year-ago quarter. The segment witnessed net outflows of $629 million, up significantly from the prior-year quarter.
Share Repurchase
Waddell & Reed bought back 90,692 shares for $1.8 million during the quarter. Overall, the company returned $39.9 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.
However, declining AUM levels due to net outflows remain a major concern. Also, as the company plans on investing in technology initiatives with an intention to modernize and optimize its operations, expenses might rise.
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
BlackRock, Inc. (BLK - Free Report) reported fourth-quarter 2016 adjusted earnings of $5.14 per share, which handedly surpassed the Zacks Consensus Estimate of $5.02. Moreover, the bottom line came in 8% higher than the year-ago quarter. The better-than-expected number was primarily driven by a decline in total expenses.
Janus Capital Group, Inc. reported fourth-quarter 2016 adjusted earnings per share of 20 cents, lagging the Zacks Consensus Estimate of 24 cents. A fall in revenues and higher expenses were primarily responsible for the lower-than-expected results.
The Blackstone Group L.P. (BX - Free Report) reported fourth-quarter 2016 economic net income of 68 cents per share, which surpassed the Zacks Consensus Estimate of 63 cents. Better-than-expected quarterly results were attributable to a significant increase in revenues.
Zacks' Top 10 Stocks for 2017
In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-hold tickers for the entirety of 2017?
Who wouldn't? As of early December, the 2016 Top 10 produced 5 double-digit winners including oil and natural gas giant Pioneer Natural Resources which racked up a stellar +50% gain. The new list is painstakingly hand-picked from 4,400 companies covered by the Zacks Rank. Be among the very first to see it>>
Zacks Names "Single Best Pick to Double"
From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.
It’s a little-known chemical company that’s up 65% over last year, yet still dirt cheap. With unrelenting demand, soaring 2022 earnings estimates, and $1.5 billion for repurchasing shares, retail investors could jump in at any time.
This company could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in little more than 9 months and NVIDIA which boomed +175.9% in one year.
Free: See Our Top Stock and 4 Runners Up >>
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