Waddell & Reed (WDR) Stock Up on Q4 Earnings Beat, AUM Rises

Shares of Waddell & Reed Financial Inc. WDR gained 2.3% in response to fourth-quarter and 2019 results. Its adjusted earnings per share of 51 cents surpassed the Zacks Consensus Estimate of 42 cents. Also, the bottom line grew 8.5% year over year.

Improvement in assets under management (AUM) balance and strong liquidity position drove the results. However, lower revenues and increase in operating expenses were the undermining factors. Further, all distribution channels witnessed outflows.

Results excluded non-cash charges and severance expenses. After considering these, net income attributable to Waddell & Reed totaled $15.9 million or 23 cents per share, down from $46.5 million or 60 cents per share in the prior-year quarter.

In 2019, adjusted earnings of $1.87 per share beat the consensus estimate of $1.76. However, it declined 16.1% year over year. Net income attributable to Waddell & Reed (GAAP basis) fell 37.4% to $115 million.

Revenues Down, Expenses Rise

Operating revenues for the quarter declined almost 1% year over year to $270.1 million, reflecting lower investment management fees, and shareholder service fees, partly offset by rise in underwriting and distribution fees. However, the figure beat the Zacks Consensus Estimate of $269 million.

In 2019, operating revenues decreased 7.8% to $1.1 billion. It was relatively in line with the consensus estimate.

Gross sales declined 43% year over year to $1.5 billion. Redemptions were $4.9 billion, down from $6.5 billion. Net outflows were $3.4 billion compared with $3.8 billion in the year-ago quarter.

Operating expenses rose 5.9% year over year to $241.2 million. The increase was majorly due to higher general and administrative costs and marketing and advertising expenses. Adjusted operating expenses increased nearly 1% to $226 million.

Adjusted operating margin was 16.3%, down from 17.5%.

As of Dec 31, 2019, AUM totaled $70 billion, up 6.3% year over year. The quarter witnessed net outflows of $3.6 billion.

As of Dec 31, 2019, the company’s cash and cash equivalents, and investment securities totaled $840 million. Long-term debt was $94.9 million and stockholders’ equity was $808.9 million.

Quarterly Performance of Distribution Channels

At the Unaffiliated channel, gross sales fell 49% year over year to $854 million. Net outflows were $1.4 billion compared with $2.1 billion recorded in the year-ago quarter.

Gross sales at the Institutional channel were $32 million, down 62.4% from the year-ago quarter. The segment witnessed net outflows of $842 million compared with $720 million a year ago.

At the Wealth Management channel, gross sales declined 30.9% year over year to $662 million. Net outflows totaled $1.2 billion, up 18.8%.

Share Repurchase Update

Waddell & Reed bought back approximately 2.3 billion shares for $37.5 million during the quarter.

Our Take

A solid AUM balance is likely to support Waddell & Reed’s financials going forward.  However, elevated expense levels and muted revenue growth are major near-term concerns.

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

Waddell & Reed currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Asset Managers

Invesco IVZ reported fourth-quarter 2019 adjusted earnings of 64 cents per share, missing the Zacks Consensus Estimate of 70 cents. However, the bottom line surged 45.5% from the prior-year quarter.

BlackRock, Inc.’s BLK fourth-quarter 2019 adjusted earnings of $8.34 per share surpassed the Zacks Consensus Estimate of $7.67. Moreover, the figure was 37.2% higher than the year-ago quarter’s number.

Cohen & Steers’ CNS fourth-quarter 2019 adjusted earnings of 74 cents per share surpassed the Zacks Consensus Estimate of 67 cents. Also, the bottom line was 32.1% higher than the year-ago quarter figure.

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