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Waddell & Reed (WDR) Jumps 7% on Q2 Earnings & Revenue Beat

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Shares of Waddell & Reed Financial Inc. (WDR - Free Report) gained 7% following the release of its second-quarter 2018 results. Earnings of 56 cents per share outpaced the Zacks Consensus Estimate of 48 cents. Also, it compared favorably with the year-ago quarter’s earnings of 29 cents.

Results benefited from an improvement in revenues. However, a slightly higher expenses and decline in assets under management (AUM) were the major headwinds. Further, all distribution channels witnessed outflows.

Net income attributable to Waddell & Reed totaled $44.5 million, surging 84.8% from the prior-year quarter.

Revenues & Expenses Rise, AUM Falls

Operating revenues in the quarter rose 3% year over year to $295.3 million, reflecting rise in underwriting and distribution fees. Also, the figure surpassed the Zacks Consensus Estimate of $289.8 million.

Gross sales decreased 11.1% year over year to $2.93 billion. Redemptions rose 5.4% to $6.07 billion. Also, net outflows were $3.13 billion at the end of the reported quarter, up from $2.46 billion at the end of the prior-year quarter.

Operating expenses inched up0.7% year over year to $237.1 million. The rise was mainly due to higher depreciation cost and subadvisory fees.

Operating margin was 19.7%, up from 17.8% from the year-ago quarter.

As of Jun 30, 2018, AUM totaled $78.65 billion, down 2.2%year over year.

As of Jun 30, 2018, the company’s cash and cash equivalents as well as investment securities totaled $825.2 million. Long-term debt was $94.8 million and stockholders’ equity was $885.7 million.

Performance of Distribution Channels

At the Broker-Dealer channel, gross sales decreased 12.3% year over year to $1 billion. Net outflows totaled $1.05 billion, increasing from $911 million in the year-ago quarter.

At the Unaffiliated Distribution channel, gross sales declined14.5% year over year to $1.78 billion. Also, net outflows were $583 million, increasing from $571 million in the year-ago quarter.

Gross sales at the Institutional channel were $153 million, surging 96.2% from the year-ago quarter. The segment witnessed net outflows of $1.5 billion, up from $973 million witnessed in the prior-year quarter.

Share Repurchases

Waddell & Reed bought back 2.1 billion shares for $40.1 million during the reported quarter.

Our Viewpoint

Muted growth in AUM is likely to hamper Waddell & Reed’s financials in the near term. Also, the presence of substantial intangibles on its balance sheet remains a cause of concern. Nevertheless, as the company is making efforts to improve efficiency and optimize operations, expenses are likely to trend lower in the next few quarters, thereby supporting bottom-line growth.

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

 

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

Waddell & Reed currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Investment Managers

BlackRock’s (BLK - Free Report) second-quarter 2018 adjusted earnings of $6.66 per share outpaced the Zacks Consensus Estimate of $6.60. Results benefited from an improvement in revenues, rise in AUM and steady long-term inflows. However, an increase in operating expenses acted as a headwind.

The Blackstone Group L.P. (BX - Free Report) reported second-quarter 2018 economic net income of 90 cents per share, which handily outpaced the Zacks Consensus Estimate of 71 cents. The quarter saw a substantial jump in revenues and growth in AUM, which was mainly driven by inflows. However, rise in expenses was the undermining factor.

Ameriprise Financial Inc.’s (AMP - Free Report) second-quarter 2018 adjusted operating earnings per share of $3.60 comfortably surpassed the Zacks Consensus Estimate of $3.51. Results benefited from an improvement in revenues. Also, growth in AUM and assets under administration supported earnings. However, a rise in expenses was an undermining factor.

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