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Waddell & Reed's (WDR) Stock Down 3.1% on Q1 Earnings Lag

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Waddell & Reed Financial Inc.’s (WDR - Free Report) shares declined 3.1% following the release of the company’s first-quarter 2017 results. Earnings of 39 cents per share lagged the Zacks Consensus Estimate of 42 cents. Also, it compared unfavorably with the year-ago quarter’s earnings of 45 cents.

Lower-than-expected results were primarily due to a decline in revenues, partially offset by lower expenses. Also, lower assets under management (AUM) were an undermining factor. However, balance sheet remained strong. Further, a fall in net outflows was a positive for the company.

Net income attributable to Waddell & Reed totaled $33.1 million, compared with nearly $37 million in the prior-year quarter.

Revenues, Expenses & AUM Decline

Operating revenues for the quarter fell 11.5% year over year to $286.6 million, reflecting a decline in all components. Moreover, it marginally lagged the Zacks Consensus Estimate of $286.9 million.

Gross sales declined 20.4% year over year to $2.92 billion. Redemptions declined 36.6% year over year to $6.31 billion. However, net outflows were $3.39 billion at the quarter end, down from $6.28 billion at the end of the prior-year quarter.

Operating expenses decreased 7.3% year over year to $234 million. The decline was primarily due to a fall in underwriting and distribution expenses, and compensation and related costs.

Operating margin was 18.4%, down from 22.1% a year ago.

As of Mar 31, 2017, AUM totaled $81.08 billion, reflecting a decline of 14.8% from the Mar 31, 2016 level.

As of Mar 31, 2017, the company’s cash and cash equivalents as well as investment securities totaled $874.5 million. Moreover, long-term debt was $94.7 million and stockholders’ equity was $848.9 million.

Deteriorating Performance of the Distribution Channels

At Retail Broker-Dealer channel, gross sales decreased 8.4% year over year to $978 million. Net outflows totaled $1.13 billion, up drastically from the year-ago figure of $301 million.

At Retail Unaffiliated Distribution channel, gross sales declined 16.1% year over year to $1.80 billion. However, net outflows were $1.67 billion, declining 68.9% year over year.

Gross sales at the Institutional channel were $142 million, declining 68.7% from the year-ago quarter. The segment witnessed net outflows of $585 million, declining 2.7% from the prior-year quarter.

Share Repurchase

Waddell & Reed bought back 476,882 shares for $7.98 million during the quarter. The company returned $46.7 million to its shareholders in the form of dividends and share repurchases during the quarter.

Our Viewpoint

Waddell & Reed has been facing continued pressure on its revenues, which is expected to hamper its financials in the near term. A declining trend in AUM is another key concern. Though the company is taking initiatives through Project E to boost its top line, it will take some time to witness a rebound. Nevertheless, the company’s continued investments in the Retail-Broker Dealer channel might help boost revenues, inflows and AUM, going forward.

Waddell & Reed Financial, Inc. Price, Consensus and EPS Surprise

Waddell & Reed Financial, Inc. Price, Consensus and EPS Surprise | Waddell & Reed Financial, Inc. Quote

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

Janus Capital Group, Inc.’s first-quarter 2017 adjusted earnings per share of 23 cents surpassed the Zacks Consensus Estimate of 21 cents. Better-than-expected results were driven by an increase in revenues. However, rise in operating expenses was a concern.

BlackRock, Inc. (BLK - Free Report) reported first-quarter 2017 adjusted earnings of $5.25 per share, which handily beat the Zacks Consensus Estimate of $4.94. The better-than-expected result was largely driven by an improvement in revenues, partially offset by an increase in expenses.

Lazard Ltd.’s (LAZ - Free Report) first-quarter 2017 adjusted earnings of 83 cents per share surpassed the Zacks Consensus Estimate by 3 cents. The reported figure compared favorably with 50 cents earned in the prior-year quarter. Earnings were primarily driven by higher revenues.

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