A month has gone by since the last earnings report for Waddell & Reed Financial (WDR). Shares have added about 0.1% 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 drivers.
Waddell & Reed Q4 Earnings Miss on Higher Expenses
Waddell & Reed’s fourth-quarter 2020 adjusted earnings of 41 cents per share lagged the Zacks Consensus Estimate of 46 cents. However, the bottom line was above 23 cents reported in the prior-year quarter.
Results reflect improvement in revenues and a solid rise in AUM balance despite modest outflows during the quarter. However, a rise in operating expenses was a headwind.
Results included costs pertaining to the proposed acquisition of the company by Macquarie Asset Management, which was announced in December 2020. After considering this, net loss was $6.9 million against net income of $16.1 billion in the prior-year period.
In 2020, adjusted earnings per share of $1.58 missed the consensus estimate of $1.63 and declined 15.5% year over year. Net income (GAAP basis) was $72.7 million, down 37.8%.
Revenues, AUM & Expenses Up
Revenues in the reported quarter grew 3% year over year to $278.1 million. A rise in all revenue components, except shareholder service fees, primarily drove the top-line growth. However, the figure marginally missed the Zacks Consensus Estimate of $278.2 million.
In 2020, revenues were $1.05 billion, down 1.9% year over year. The top line matched the consensus estimate.
Gross sales rose 28.4% to $2 billion. Redemptions were $3.8 billion, down from $4.9 billion in the prior-year quarter.
Operating expenses jumped 23.4% on a year-over-year basis to $283.9 million. Adjusted operating expenses increased 2.4% to $244.3 million.
Adjusted operating margin was 12.1%, down from 16.3%.
As of Dec 31, 2020, AUM totaled $74.8 billion, up 7%. Net outflows of $1.8 billion were recorded in the quarter. Further, assets under administration were $69.7 billion, rising 16%.
As of Dec 31, 2020, the company’s cash and cash equivalents, and investment securities totaled $760.5 million. Stockholders’ equity was $727.8 million.
Solid Quarterly Performance of Distribution Channels
At the Unaffiliated channel, gross sales surged 46.8% year over year to $1.3 billion. Net outflows were $462 million compared with $1.4 billion in the year-ago quarter.
Gross sales at the Institutional channel were $46 million, jumping 43.8%. The channel’s net outflows were $143 million compared with $842 million a year ago.
At the Wealth Management channel, gross sales increased 3.9% year over year to $688 million. Net outflows totaled $1.2 billion, up 1%.
Share Repurchase Update
Waddell & Reed bought back 102,817 shares for $2.6 million during the quarter.
How Have Estimates Been Moving Since Then?
Estimates review followed an upward path over the past two months.
At this time, Waddell & Reed has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.
Waddell & Reed has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.
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