Waddell & Reed (WDR) Up 2.5% On Q1 Earnings Beat, AUM Down

Shares of Waddell & Reed Financial Inc. (NYSE:WDR) rallied 2.5% following the release of its first-quarter 2019 results. Earnings of 42 cents per share outpaced the Zacks Consensus Estimate of 36 cents. However, the figure compared unfavorably with the year-ago quarter’s earnings of 56 cents.

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 outflows.

Net income attributable to Waddell & Reed totaled $32.1 million, down 31% from the prior-year quarter.

Revenues, Expenses & AUM Fall

Operating revenues declined 13% year over year to $259.4 million, reflecting lower investment management fees, underwriting and distribution fees, and shareholder service fees. Also, the figure missed the Zacks Consensus Estimate of $268.9 million.

Gross sales declined 34% year over year to$2.49 billion. Redemptions fell 18% to $4.29 billion. Net outflows were $1.80 billion, up 24%.

Operating expenses declined 6% year over year to $223.9 million. Almost all expense components, except for depreciation costs, witnessed a fall.

Operating margin was 13.7%, down from 20.1%.

As of Mar 31, 2019, AUM totaled $71.65 billion, down 11% year over year.

As of Mar 31, 2019, the company’s cash and cash equivalents, as well as investment securities totaled $826.7 million. Long-term debt was $94.9 million and stockholders’ equity was $868.6 million.

Quarterly Performance of Distribution Channels

At the Broker-Dealer channel, gross sales decreased 25% year over year to $754 million. Net outflows totaled $1.15 billion, down from $1.20 billion.

At the Unaffiliated channel, gross sales fell29% year over year to $1.59 billion. Net outflows were $437 million, up from $200 million.

Gross sales at the Institutional channel were $141 million, plunging 74% from the year-ago quarter. The segment witnessed net outflows of $216 million, up from $52 million.

Share Repurchases

Waddell & Reed bought back 2.23 billion shares for $39.1 million during the reported quarter.

Our Take

Decrease in AUM is likely to hamper Waddell & Reed’s financials in the near term. 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 currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Performance of Other Asset Managers

BlackRock, Inc.’s (NYSE:BLK) first-quarter 2019 adjusted earnings of $6.61 per share surpassed the Zacks Consensus Estimate of $6.20. However, the figure was 1.3% lower than the year-ago quarter’s number.

Blackstone (NYSE:BX) reported first-quarter 2019 distributable earnings of 44 cents, lagging the Zacks Consensus Estimate of 52 cents. However, the figure reflects improvement from 41 cents earned in the prior-year quarter.

Cohen & Steers’ (NYSE:CNS) first-quarter 2019 adjusted earnings came in at 58 cents per share, missing the Zacks Consensus Estimate by a penny. Also, the bottom line was 6.5% lower than the year-ago quarter figure.

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