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Waddell & Reed (WDR) Stock Up on Q3 Earnings Beat, AUM Down

Zacks Equity Research

Shares of Waddell & Reed Financial Inc. WDR gained 4.2%, following the release of third-quarter 2019 results. Its earnings per share of 46 cents surpassed the Zacks Consensus Estimate of 40 cents. However, the bottom line declined 21% year over year.

Results were driven by a decline in expenses. However, fall in assets under management (AUM) and lower revenues were major headwinds. Further, all distribution channels witnessed outflows.

Net income attributable to Waddell & Reed totaled $33.1 million, down 29% from the prior-year quarter.

Revenues, Expenses & AUM Decline

Revenues declined 8% year over year to $270.7 million, reflecting lower investment management fees, underwriting and distribution fees, and shareholder service fees. However, the figure beat the Zacks Consensus Estimate of $266.8 million.

Gross sales declined 30% year over year to $1.8 billion. Redemptions were $4.5 billion, slightly down from $4.6 billion recorded in the prior-year quarter. Net outflows were $2.7 billion compared with $2 billion in the year-ago quarter.

Operating expenses declined 2% year over year to $230.7 million. Almost all expense components, except for distribution costs, compensation and benefits costs, and subadvisory fees, witnessed a fall.

Operating margin was 14.8%, down from 20.2%.

As of Sep 30, 2019, AUM totaled $68.8 billion, down 14% year over year.

As of Sep 30, 2019, the company’s cash and cash equivalents, and investment securities totaled $854.2 million. Long-term debt was $94.9 million and stockholders’ equity was $839.5 million.

Performance of Distribution Channels

At the Unaffiliated channel, gross sales fell 37% year over year to $999 million. Net outflows were $1.4 billion compared with $476 million recorded in the year-ago quarter.

Gross sales at the Institutional channel were $49 million, down 41% from the year-ago quarter. The segment witnessed net outflows of $181 million compared with net outflows of $452 million witnessed a year ago.

At the Wealth Management channel, gross sales declined 15% year over year to $744 million. Net outflows totaled $1.1 billion, up 3% year over year.

Share Repurchases

Waddell & Reed bought back 2.5 billion shares for $40.7 million during the reported quarter.

Our Take

A continued decline in AUM is likely to hamper the company’s financials in the near term. Also, the presence of substantial intangibles on its balance sheet makes us apprehensive.

Waddell & Reed Financial, Inc. Price, Consensus and EPS Surprise

Waddell & Reed Financial, Inc. Price, Consensus and EPS Surprise
Waddell & Reed Financial, Inc. Price, Consensus and EPS Surprise

Waddell & Reed Financial, Inc. price-consensus-eps-surprise-chart | Waddell & Reed Financial, Inc. Quote

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Waddell & Reed currently carries a Zacks Rank #5 (Strong Sell).

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

Performance of Other Asset Managers

Cohen & Steers’ CNS third-quarter 2019 adjusted earnings of 65 cents per share beat the Zacks Consensus Estimate of 63 cents. Also, the bottom line was 1.6% higher than the year-ago quarter figure.

BlackRock, Inc.’s BLK third-quarter 2019 adjusted earnings of $7.15 per share surpassed the Zacks Consensus Estimate of $6.95. However, the figure was 4.9% lower than the year-ago quarter’s number.

Invesco IVZ reported third-quarter 2019 adjusted earnings of 70 cents per share, beating the Zacks Consensus Estimate of 57 cents. Also, the bottom line was 6.1% up from the prior-year quarter.

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