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Why Is Waddell & Reed (WDR) Up 3.2% Since Its Last Earnings Report?

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It has been about a month since the last earnings report for Waddell & Reed Financial, Inc. (WDR - Free Report) . Shares have added about 3.2% in that time frame.

Will the recent positive trend continue leading up to its next earnings release, or is WDR due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Waddell & Reed Beats on Q1 Earnings, AUM Down Y/Y

Waddell & Reed’s first-quarter 2018 earnings of 56 cents per share outpaced the Zacks Consensus Estimate of 54 cents. Also, it compared favorably with the year-ago quarter’s earnings of 40 cents.

Results benefited from an improvement in revenues. However, higher expenses were the major headwind. Also, a slight decline in assets under management hurt results to quite an extent.

Net income attributable to Waddell & Reed totaled $46.3 million, up 36.8% from the prior-year quarter.

Revenues & Expenses Rise, AUM Falls

Operating revenues in the quarter rose 3.9% year over year to $297.6 million, reflecting rise in investment management fees along with underwriting and distribution fees. Also, the figure surpassed the Zacks Consensus Estimate of $289.7 million.

Gross sales increased 30.1% year over year to $3.80 billion. Redemptions declined 16.7% to $5.25 billion. Also, net outflows were $1.46 billion at the end of the reported quarter, down from $3.39 billion at the end of the prior-year quarter.

Operating expenses increased 1.8% year over year to $237.7 million. The rise was due to higher distribution cost, compensation and benefits expense, depreciation cost and subadvisory fees.

Operating margin was 20.1%, up from 18.5% a year ago.

As of Mar 31, 2018, AUM totaled $80.21 billion, down from $81.08 billion as of Mar 31, 2017.

As of Mar 31, 2018, the company’s cash and cash equivalents as well as investment securities, totaled $819.9 million. Long-term debt was $94.8 million and stockholders’ equity was $889 million.

Performance of Distribution Channels

At the Retail Broker-Dealer channel, gross sales increased 2.4% year over year to $1 billion. Net outflows totaled $1.20 billion, increasing from $1.13 billion in the year-ago quarter.

At the Retail Unaffiliated Distribution channel, gross sales increased 24.8% year over year to $2.25 billion. Also, net outflows were $200 million, down 88% year over year.

Gross sales at the Institutional channel were $552 million, increasing significantly from $142 million in the year-ago quarter. The segment witnessed net outflows of $52 million, significantly down from $585 million witnessed in the prior-year quarter.

Share Repurchases

Waddell & Reed bought back 996.3 million shares for $20.5 million during the reported quarter.


As the company froze its defined benefit pension plan in September 2017, this will result in savings of $12 million each year.

The company expects to incur severance costs of nearly $4-$5 million in second-quarter 2018. Also, during the remainder of 2018, it expects to incur certain additional costs as it exits real estate.

For 2018, management expects fixed costs to be nearly $440 million.

As part of its initiative to improve corporate efficiency, management announced a plan in July 2017, which is expected to add $30-$40 million to pre-tax income by 2019.

The company expects effective tax rate for 2018 to be in the range of 23% to 25%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. There have been two revisions lower for the current quarter. Last month, the consensus estimate has shifted downward by 7% due to these changes.

Waddell & Reed Financial, Inc. Price and Consensus


VGM Scores

At this time, WDR has a great Growth Score of A, though it is lagging a lot on the momentum front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Zacks' style scores indicate that the company's stock is suitable for value and growth investors.


Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. Interestingly, WDR has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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