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Waddell & Reed (WDR) Stock Down 1.5% Despite Q3 Earnings Beat

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Waddell & Reed Financial Inc.’s third-quarter 2020 earnings of 48 cents per share outpaced the Zacks Consensus Estimate of 41 cents. However, the figure was below the adjusted earnings of 49 cents in the prior-year quarter.

The results reflect stable operating expenses. However, a decline in revenues and marginal fall in assets under management (AUM) balance owing to outflows were major undermining factors. Perhaps due to these concerns, the company’s shares lost 1.5% following the earnings release.

Net income attributable to Waddell & Reed was $30.5 million, down 8% year over year.

Revenues Down, Expenses Stable

Revenues dipped 1% year over year to $267.7 million. A fall in all revenue components, except underwriting and distribution fees, was the primary reasons for the top-line decline. However, the figure beat the Zacks Consensus Estimate of $263.1 million.

Gross sales grew 2% to $1.8 billion. Redemptions were $3.6 billion, down from $4.5 billion in the prior-year quarter.

Operating expenses were relatively stable on a year-over-year basis at $230 million.

Adjusted operating margin was 14.1%, down from 15.9%.

As of Sep 30, 2020, AUM totaled $67.9 billion, down 1% year over year. Net outflows of $1.8 billion were recorded in the quarter.

As of Sep 30, 2020, the company’s cash and cash equivalents, and investment securities totaled $744.6 million. Stockholders’ equity was $747.5 million.

Decent Performance of Distribution Channels

At the Unaffiliated channel, gross sales improved 13% year over year to $1.3 billion. Net outflows were $611 million compared with $1.4 billion in the year-ago quarter.

Gross sales at the Institutional channel were $59 million, up 20%. The segment’s net outflows were $106 million compared with $181 million a year ago.

At the Wealth Management channel, gross sales decreased 15% year over year to $634 million. Net outflows totaled $1.1 billion, up 3%.

Share Repurchase Update

Waddell & Reed bought back 2.6 billion shares for $40.1 million during the quarter.

Our Take

The company’s focus on strengthening the Wealth Management channel is expected to support profitability over the long term. However, outflows and weak revenue growth are major near-term concerns.

Waddell & Reed currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.


Performance of Other Asset Managers

SEI Investments Co.’s (SEIC - Free Report) third-quarter 2020 earnings of 75 cents per share lagged the Zacks Consensus Estimate of 81 cents. Moreover, the figure reflects a decline of 12.8% from the prior-year quarter.

Cohen & Steers’ (CNS - Free Report) third-quarter 2020 adjusted earnings of 67 cents per share surpassed the Zacks Consensus Estimate of 60 cents. Moreover, the bottom line was 3.1% higher than the year-ago reported figure.

Affiliated Managers Group Inc.’s (AMG - Free Report) third-quarter 2020 economic earnings of $3.27 per share surpassed the Zacks Consensus Estimate of $2.86. Also, the bottom line grew 3.5% year over year.

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