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Waddell & Reed (WDR) Q4 Earnings Beat, AUM & Revenues Down

Zacks Equity Research

Waddell & Reed Financial Inc.’s WDR 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.

Share Repurchases

Waddell & Reed bought back 2.44 billion shares for $46.9 million during the reported quarter.

Our Take

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.

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 #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Investment Managers

BlackRock’s BLK fourth-quarter 2018 adjusted earnings of $6.08 per share missed the Zacks Consensus Estimate of $6.39. Further, the bottom line came in 2% lower than the year-ago figure.

Affiliated Managers Group Inc.’s AMG fourth-quarter 2018 economic earnings of $3.53 per share outpaced the Zacks Consensus Estimate of $3.51. However, the figure was down 24.6% year over year.

Invesco IVZ reported fourth-quarter 2018 adjusted earnings of 44 cents per share, lagging the Zacks Consensus Estimate of 56 cents. Also, the figure was 39.7% below the prior-year quarter level.

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