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Waddell & Reed Beats on Both Earnings & Revs

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Waddell & Reed Financial Inc. (WDR - Free Report) posted third-quarter 2013 earnings per share of 80 cents, surpassing the Zacks Consensus Estimate of 72 cents. This also compared favorably with the year-ago earnings of 61 cents.

Robust results were driven by top-line growth, partially offset by higher operating expenses. Rise in assets under management (AUM) and a solid balance sheet were the other positives.

Net income for the said quarter came in at $68.4 million, up 31.3% from $52.1 million in the comparable period last year.

Highlights of the Release

Waddell & Reed’s operating revenues climbed 18.2% to $347.1 million from $289.7 million in the year-ago quarter. Moreover, operating revenues exceeded the Zacks Consensus Estimate of $341.0 million.

Overall, gross sales increased 24.8% year over year to $6.8 billion. Redemptions were $5.3 billion, up 15.2% from $4.6 billion in the prior-year quarter. Moreover, net inflows rose 78.6% year over year to $1.5 billion.

At the Advisors channel, gross sales rose 17.7% to $1.4 billion from $1.2 billion in the year-ago quarter. Net inflows grew 41.5% year over year to $259 million.

At the Wholesale channel, gross sales rose 40.3% to $5.2 billion from the previous-year quarter. Net inflows increased to $1.6 billion from $670 million in the year-ago quarter.

Gross sales at the Institutional channel came in at $386 million, decreasing 49.4% from $763 million in the prior-year quarter. Further, the segment witnessed net outflows of $164 million versus inflows of $231 million as of Sep 30, 2012.  

Waddell & Reed’s operating expenses rose 14.2% year over year to $243.8 million. This was primarily due to increase in underwriting and distribution expenses, compensation and related costs as well as general and administrative costs.

Operating margin came in at 29.8%, up from 27.2% in the prior-year quarter.

As of Sep 30, 2013, AUM totaled $113.7 billion, up 17.1% from $94.8 billion as of Sep 30, 2012.

Balance Sheet

As of Sep 30, 2013, cash and cash equivalents as well as investment securities were $623 million. Moreover, long-term debt totaled $190 million and stockholders’ equity was recorded at $612 million.

Share Repurchase

In the reported quarter, Waddell & Reed repurchased 317,000 shares.

Performance of Other Financial Organizations:

Ameriprise Financial Inc.’s (AMP - Free Report) third-quarter earnings per share surpassed the Zacks Consensus Estimate. Better-than-expected results were driven by top-line growth, partially offset by higher operating expense.

Among other financial institutions, quarterly earnings of The Blackstone Group L.P.’s (BX - Free Report) missed the Zacks Consensus Estimate while BlackRock, Inc.’s (BLK - Free Report) posted in-line earnings. Blackstone’s results suffered due to fall in the top line, partly offset by lower expenses. On the other hand, BlackRock’s earnings were aided by revenue growth but partly offset by steep operating expenses.

Our Stance

Waddell & Reed remains an attractive pick for investors, given its capital deployment activities on the back of a stable balance sheet position. Moreover, sustainable sales growth across most of its segments will expectedly drive profitability going forward. On the flip side, rising expenses, the sluggish economic scenario and cut-throat competition keep us cautious.

Waddell & Reed at present carries a Zacks Rank #2 (Buy).

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