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Waddell & Reed (WDR) Q4 Earnings Miss on Higher Expenses

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Waddell & Reed Financial Inc.’s fourth-quarter 2020 adjusted earnings of 41 cents per share lagged the Zacks Consensus Estimate of 46 cents. However, the bottom line was above 23 cents reported in the prior-year quarter.

Results reflect improvement in revenues and a solid rise in assets under management (AUM) balance despite modest outflows during the quarter. However, a rise in operating expenses was a headwind.

Results included costs pertaining to the proposed acquisition of the company by Macquarie Asset Management, which was announced in December 2020. After considering this, net loss was $6.9 million against net income of $16.1 billion in the prior-year period.

In 2020, adjusted earnings per share of $1.58 missed the consensus estimate of $1.63 and declined 15.5% year over year. Net income (GAAP basis) was $72.7 million, down 37.8%.

Revenues, AUM & Expenses Up

Revenues in the reported quarter grew 3% year over year to $278.1 million. A rise in all revenue components, except shareholder service fees, primarily drove the top-line growth. However, the figure marginally missed the Zacks Consensus Estimate of $278.2 million.

In 2020, revenues were $1.05 billion, down 1.9% year over year. The top line matched the consensus estimate.

Gross sales rose 28.4% to $2 billion. Redemptions were $3.8 billion, down from $4.9 billion in the prior-year quarter.

Operating expenses jumped 23.4% on a year-over-year basis to $283.9 million. Adjusted operating expenses increased 2.4% to $244.3 million.

Adjusted operating margin was 12.1%, down from 16.3%.

As of Dec 31, 2020, AUM totaled $74.8 billion, up 7%. Net outflows of $1.8 billion were recorded in the quarter. Further, assets under administration were $69.7 billion, rising 16%.

As of Dec 31, 2020, the company’s cash and cash equivalents, and investment securities totaled $760.5 million. Stockholders’ equity was $727.8 million.

Solid Quarterly Performance of Distribution Channels

At the Unaffiliated channel, gross sales surged 46.8% year over year to $1.3 billion. Net outflows were $462 million compared with $1.4 billion in the year-ago quarter.

Gross sales at the Institutional channel were $46 million, jumping 43.8%. The channel’s net outflows were $143 million compared with $842 million a year ago.

At the Wealth Management channel, gross sales increased 3.9% year over year to $688 million. Net outflows totaled $1.2 billion, up 1%.

Share Repurchase Update

Waddell & Reed bought back 102.8 million shares for $2.6 million during the quarter.

Our Viewpoint

Waddell & Reed’s focus on strengthening the Wealth Management channel is expected to support profitability over the long term. However, continued outflows are a major near-term concern.

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

 

Performance of Other Asset Managers

Cohen & Steers’ (CNS - Free Report) fourth-quarter 2020 adjusted earnings of 76 cents per share surpassed the Zacks Consensus Estimate of 67 cents. Moreover, the bottom line was 2.7% higher than the year-ago reported figure.

Invesco (IVZ - Free Report) reported fourth-quarter 2020 adjusted earnings of 72 cents per share, surpassing the Zacks Consensus Estimate of 57 cents. Also, the bottom line grew 12.5% from the prior-year quarter.

SEI Investments Co.’s (SEIC - Free Report) fourth-quarter 2020 earnings of 86 cents per share surpassed the Zacks Consensus Estimate of 80 cents. Moreover, the figure reflects a rise of 2.4% from the prior-year quarter.

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