A month has gone by since the last earnings report for Waddell & Reed Financial (WDR - Free Report) . Shares have added about 2.9% 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 the most recent earnings report in order to get a better handle on the important catalysts.
Waddell & Reed Q4 Earnings Beat, AUM & Revenues Down
Waddell & Reed Financial Inc.’s fourth-quarter 2018 earnings of 60 cents per share outpaced the Zacks Consensus Estimate of 52 cents. Moreover, the figure compared favorably with the year-ago quarter’s earnings of 36 cents (included the impact of tax act).
Results benefited from decline in expenses. However, fall in assets under management (AUM) and lower revenues were the major headwinds. Further, all distribution channels witnessed substantial outflows.
Net income attributable to Waddell & Reed for the reported quarter totaled $46.5 million, up 56.1% from the prior-year quarter.
For 2018, earnings of $2.28 per share outpaced the Zacks Consensus Estimate of $2.19. Also, the figure compared favorably with the prior year’s earnings of $1.69 (included the impact of tax act). Net income attributable to Waddell & Reed increased 29.9% to $183.6 million.
Revenues, Expenses & AUM Fall
Operating revenues for the reported quarter declined 7.6% year over year to $272.2 million, reflecting lower Investment management fees and shareholder service fees. Further, the figure missed the Zacks Consensus Estimate of $276.3 million.
Operating revenues for 2018 were $1.16 billion, up marginally year over year. However, the figure lagged the consensus estimate of $1.17 billion.
Gross sales were relatively stable year over year at $2.72 billion. Redemptions rose 19.1% to $6.50 billion. Also, net outflows were $3.78 billion at the end of the reported quarter, up 38.1%.
Operating expenses fell 2.1% year over year to $227.8 million. Almost all expense components, except for technology costs, witnessed a decline.
Operating margin was 16.3%, down from 21.0% in the year-ago quarter.
As of Dec 31, 2018, AUM totaled $65.81 billion, down 18.8% year over year.
As of Dec 31, 2018, the company’s cash and cash equivalents, as well as investment securities totaled $849.1 million. Long-term debt was $94.8 million and stockholders’ equity was $883.5 million.
Quarterly Performance of Distribution Channels
At the Broker-Dealer channel, gross sales decreased 11% year over year to $958 million. Net outflows totaled $969 million, down from $1.27 billion.
At the Unaffiliated channel, gross sales grew 6.1% year over year to $1.67 billion. However, net outflows were $2.1 billion, up from $1.02 billion.
Gross sales at the Institutional channel were $85 million, increasing 28.8% from the year-ago quarter. The segment witnessed net outflows of $720 million, up from $455 million.
Waddell & Reed bought back 2.44 billion shares for $46.9 million during the reported quarter.
Management expects to redeem $500 million of assets from its institutional fund in the first half of 2019.
Further, it expects operating expenses to remain stable at $440 million in 2019. Depreciation costs are anticipated to be in the range of $15-$20 million for 2019, down from $25.7 mllion incurred in 2018.
The effective tax rate is expected to be 23-25%, going forward.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -28.68% due to these changes.
At this time, Waddell & Reed has an average Growth Score of C, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Waddell & Reed has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.