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Waddell & Reed Up 1.5% Despite Disappointing Q1 Earnings - Analyst Blog

Rise in outflows led Waddell & Reed Financial Inc.’s WDR first-quarter 2015 earnings per share of 80 cents, which missed the Zacks Consensus Estimate of 82 cents. Also, the reported figure came in 9% below the year-ago quarter.

However, shares of Waddell & Reed increased more than 1.5% as broader market sentiment was positive.
 

Waddell & Reed Financial Inc. - Earnings Surprise | FindTheCompany

 

Lower revenues and a rise in operating expenses adversely impacted the results. Further, assets under management (“AUM”) reflected weakness, while a fall in sales and higher outflows acted as headwinds.

Net income totaled $67.1 million, down 10% year over year.

Performance Highlights

Operating revenues inched down 1% year over year to $385.5 million, reflecting a decline in average AUM. However, it surpassed the Zacks Consensus Estimate of $382.4 million.

Gross sales fell 46% year over year to $5.4 billion. Redemptions rose 68% from the prior year quarter to $9.0 billion. Further, net outflows came in at $3.6 billion at the quarter-end, as against net inflows of $4.7 billion in the prior-year quarter.

At the Advisors channel, gross sales decreased 11% year over year to $1.3 billion. Net outflows totaled $233 million compared with net inflows of $217 million in the year-ago quarter.

At the Wholesale channel, gross sales declined 45% year over year to $3.9 billion. Net outflows amounted to $2.2 billion compared with net inflows of $3.6 billion in the prior-year quarter.

Gross sales at the Institutional channel came in at $300 million, down 81% from the year-ago quarter. Further, the segment witnessed net outflows of $1.2 billion versus inflows of $875 million in the year-ago quarter.

Operating expenses rose 3% year over year to $281.0 million. The rise was mainly caused by an increase in all expense components.

Operating margin stood at 27.1%, down from 29.9% in the prior-year quarter.

As of Mar 31, 2015, AUM totaled $122.9 billion, down 6% from Mar 31, 2014 due to net outflows, partly offset by positive market action.

At the end of the reported quarter, cash and cash equivalents as well as investment securities totaled $856.2 million. Moreover, long-term debt summed $190.0 million and stockholders’ equity was recorded at $828.6 million.

Share Repurchase

In the reported quarter, Waddell & Reed bought back 106.1 million shares for $4.6 million. Overall, the company returned $40.6 million to its shareholders in the form of dividends and share repurchases in the first quarter.

Our View

Waddell & Reed remains well positioned for future growth, backed by its constant efforts toward development. Moreover, a strong balance sheet and effective capital deployment activities are expected to work in its favor.

However, a rise in outflows in the reported quarter raises concerns about the company’s prospects. Also, mounting expenses, a competitive landscape and unfavorable market conditions are anticipated to further aggravate the pressure on its financials.

At present, Waddell & Reed has a Zacks Rank #2 (Buy).

Among other investment management firms, Invesco Ltd. IVZ, Apollo Global Management, LLC APO and Ares Management, L.P. ARES are scheduled to report first-quarter 2015 results on Apr 30, May 7 and May 12, respectively.


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