It has been about a month since the last earnings report for Waddell & Reed Financial (WDR). Shares have lost about 2.9% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Waddell & Reed due for a breakout? 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 Q1 Earnings Miss, Revenues Rise Y/Y
Waddell & Reed’s first-quarter 2020 earnings per share of 32 cents missed the Zacks Consensus Estimate by a penny. Also, the bottom line declined 24% year over year.
The results reflect a decline in AUM balance owing to substantial outflows. However, a modest increase in revenues and stable operating expenses were tailwinds.
Net income attributable to Waddell & Reed totaled $22 million, down 31% from the prior-year quarter.
Revenues Up, Expenses Stable
Revenues rose 2% year over year to $263.7 million, reflecting a rise in underwriting and distribution fees. Also, the figure beat the Zacks Consensus Estimate of $259.9 million.
Gross sales grew 1% year over year to $2.5 billion. Redemptions were $4.8 billion, up from $4.3 billion in the prior-year quarter.
Operating expenses were relatively stable on a year-over-year basis at $224.3 million.
Adjusted operating margin was 14.9%, up from 13.7% in the year-ago quarter.
As of Mar 31, 2020, AUM totaled $56 billion, down 22% year over year. Net outflows of $2.3 billion were recorded in the quarter.
As of Mar 31, 2020, the company’s cash and cash equivalents, and investment securities totaled $766.1 million. Stockholders’ equity was $765.7 million.
Performance of Distribution Channels
At the Unaffiliated channel, gross sales fell 1% year over year to $1.58 billion. Net outflows were $1.1 billion compared with $437 million recorded in the year-ago quarter.
Gross sales at the Institutional channel were $43 million, down 70% from the year-ago quarter. The segment’s net outflows were $136 million compared with $216 million a year ago.
At the Wealth Management channel, gross sales increased 19% year over year to $895 million. Net outflows totaled $1 billion, up 11% from a year ago.
Share Repurchase Update
Waddell & Reed bought back 3.8 billion shares for $53.9 million during the quarter.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision.
At this time, Waddell & Reed has a subpar Growth Score of D, however its Momentum Score is doing a lot better with an A. 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 C. 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 this revision indicates a downward shift. Notably, Waddell & Reed has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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