It has been about a month since the last earnings report for Waddell & Reed Financial (WDR - Free Report) . Shares have added about 5.9% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Waddell & Reed due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Waddell & Reed Beats on Q3 Earnings, Revenues Improve
Waddell & Reed’s third-quarter 2018 earnings of 58 cents per share outpaced the Zacks Consensus Estimate of 57 cents. Moreover, the figure compared favorably with the year-ago quarter’s earnings of 64 cents.
Results benefited from an improvement in revenues. Expenses remained stable year over year during the reported quarter. However, decline in AUM was a major headwind. Further, all distribution channels witnessed outflows.
Net income attributable to Waddell & Reed totaled $46.3 million, down 13.6% from the prior-year quarter.
Revenues Improve & Expenses Remain Stable, AUM Falls
Operating revenues rose 2% year over year to $295.1 million, reflecting rise in underwriting and distribution fees. Moreover, the figure surpassed the Zacks Consensus Estimate of $293.8 million.
Gross sales decreased 11.7% year over year to $2.55 billion. Redemptions decreased 19.4% to $4.57 billion. Net outflows were $2.03 billion at the end of the reported quarter, down from $2.79 billion at the end of the prior-year quarter.
Operating expenses remained relatively flat year over year at $235.6 million. Almost all expense components except for distribution costs, depreciation expenses and sub-advisory fees witnessed a decline.
Operating margin was 20.2%, up from 18.6% in the year-ago quarter.
As of Sep 30, 2018, AUM totaled $79.54 billion, down 1.7% year over year.
As of Sep 30, 2018, the company’s cash and cash equivalents, as well as investment securities, totaled $858.9 million. Long-term debt was $94.8 million and stockholders’ equity was $893.5 million.
Performance of Distribution Channels
At the Broker-Dealer channel, gross sales decreased 14.6% year over year to $874 million. Net outflows totaled $1.10 billion, decreasing from $1.24 billion in the year-ago quarter.
At the Unaffiliated Distribution channel, gross sales declined 11.2% year over year to $1.59 billion. However, net outflows were $476 million, decreasing from $483 million in the year-ago quarter.
Gross sales at the Institutional channel were $83 million, increasing 22.1% from the year-ago quarter. The segment witnessed net outflows of $452 million, down from $1.07 billion witnessed in the prior-year quarter.
Waddell & Reed bought back 1.4 billion shares for $28.4 million during the reported quarter.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended upward during the past month.
Currently, Waddell & Reed has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile 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.
Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. Notably, Waddell & Reed has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.