Driven by strong inflows and rise in revenues, Waddell & Reed Financial Inc. (WDR) posted fourth-quarter earnings per share of 92 cents, outpacing the Zacks Consensus Estimate of 82 cents. The bottom line was also up 50.8% from the year-ago earnings of 61 cents.
Better-than-expected results were attributable to top-line growth, partly offset by higher operating expenses. Further, strong growth in assets under management (AUM), robust liquidity position and impressive capital deployment activities were the tailwinds.
Net income for the said quarter came in at $78.8 million, up 47.7% year over year.
Performance Highlights
Waddell & Reed’s operating revenues grew 23.8% from the prior-year quarter to $375.0 million. Moreover, it exceeded the Zacks Consensus Estimate of $365.0 million.
Overall, gross sales were $9.3 billion, up 71.2% year over year. Redemptions were $5.3 billion, down 4.9% from $5.6 billion in the prior-year quarter. Moreover, net inflows were $4.0 billion compared with net outflows of $165 million in the year-ago quarter.
At the Advisors channel, gross sales rose 6.1% to $1.3 billion. Net inflows were $87 million compared with net outflows of $75 million in the prior-year quarter.
At the Wholesale channel, gross sales increased 70.8% from the prior-year quarter to $6.1 billion. Net inflows were $2.8 billion versus net outflows of $77 million in the year-ago quarter.
Gross sales at the Institutional channel came in at $1.9 billion, up significantly from $649 million in the year-ago quarter. Further, the segment witnessed net inflows of $1.1 billion versus outflows of $13 million as of Dec 31, 2012.
Operating expenses rose 19.2% year over year to $261.6 million. This was primarily due to increased underwriting and distribution expenses, compensation and related costs as well as general and administrative costs.
Operating margin came in at 30.2%, up from 27.5% in the prior-year quarter.
As of Dec 31, 2013, AUM totaled $126.5 billion, up 31.3% from $96.4 billion as of Dec 31, 2012.
As of Dec 31, 2013, cash and cash equivalents as well as investment securities were $689.1 million. Moreover, long-term debt totaled $190.0 million and stockholders’ equity was recorded at $687.3 million.
Share Repurchase
In the reported quarter, Waddell & Reed repurchased 304 million shares for $19.6 million. For 2013, the company brought back nearly 1.5 billion shares worth $72.1 million.
Overall, Waddell & Reed returned $168.2 million to shareholders in the form of dividends and share repurchases in 2013.
Performance of Other Investment Managers
Earnings per share of Invesco Ltd. (IVZ), The Blackstone Group L.P. (BX) and BlackRock, Inc. (BLK) surpassed the Zacks Consensus Estimate. Results benefited from top-line growth, partially offset by higher expenses. Further, all three recorded an impressive AUM growth.
Our Stance
Waddell & Reed remains an attractive pick for investors, given its capital deployment activities on the back of a stable balance sheet position. Moreover, sustainable sales growth across most of its segments will likely drive profitability going forward. On the flip side, rising expenses, the sluggish economic scenario and cut-throat competition keep us cautious.
Waddell & Reed at present carries a Zacks Rank #2 (Buy).
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