Shares of Waddell & Reed Financial Inc. WDR declined 2.5% following the release of its fourth-quarter 2017 results. Adjusted earnings of 48 cents per share outpaced the Zacks Consensus Estimate of 45 cents. Also, it compared favorably with the year-ago quarter’s adjusted earnings of 35 cents.
Despite improved quarterly performance, the fall in Waddell & Reed’s share price reflects overall dismal market performance.
Results benefited from a modest improvement in revenues and assets under management (AUM). Also, decline in operating expenses was a tailwind.
After considering the charges related to new pension accounting method and the tax act, net income attributable to Waddell & Reed totaled $29.8 million, up 2.5% from the prior-year quarter.
For 2017, adjusted earnings per share of $1.69 beat the Zacks Consensus Estimate of $1.58 but were down 11.1% year over year. After taking into consideration the above-mentioned charges, net income attributable to Waddell & Reed was $141.3 million, down 9.8% from the last year.
Marginal Rise in AUM & Revenues, Expenses Fall
Operating revenues in the quarter rose marginally year over year to $294.5 million, reflecting a rise in investment management fees. Also, it surpassed the Zacks Consensus Estimate of $288.8 million.
For 2017, operating revenues declined 6.6% from the prior year to $1.16 billion. Also, it compared unfavorably with the Zacks Consensus Estimate of $1.5 billion.
Gross sales increased modestly year over year to $2.72 billion. Redemptions declined 23.1% to $5.46 billion. Also, net outflows were $2.74 billion at the quarter end, down from $4.39 billion at the end of the prior-year quarter.
Operating expenses fell 2.4% year over year to $239.2 million. The decrease was primarily due to lower underwriting and distribution costs and absence of intangible impairment expenses.
Operating margin was 18.8%, up from 16.4% a year ago.
As of Dec 31, 2017, AUM totaled $81.08 billion, reflecting a slight rise from the Dec 31, 2016 level.
As of Dec 31, 2017, the company’s cash and cash equivalents as well as investment securities totaled $908.3 million. Long-term debt was $94.8 million and stockholders’ equity was $872.9 million.
Performance of Distribution Channels
At the Retail Broker-Dealer channel, gross sales declined 2.2% year over year at $1.08 billion. Also, net outflows totaled $1.27 billion, increasing from $750 million in the year-ago quarter.
At the Retail Unaffiliated Distribution channel, gross sales increased 14.9% year over year to $1.58 billion. Also, net outflows were $1.02 billion, down 66.1%.
Gross sales at the Institutional channel were $66 million, plunging 72.7% from the year-ago quarter. The segment witnessed net outflows of $455 million, down 27.6% from the prior-year quarter.
Share Repurchases
Waddell & Reed bought back 937.9 million shares for $20.1 million during the quarter. The company returned a total of $58.5 million to its shareholders in the form of dividends and share repurchases during the quarter.
Our Viewpoint
Waddell & Reed has been facing pressure on its revenues, which will continue to hamper its financials in the near term. Although the company is taking initiatives through Project E to boost its top line, it will take a while to witness a rebound. Nevertheless, expenses remain manageable. Also, its continued investments in the Retail-Broker Dealer channel might help boost revenues and AUM in the future.
Waddell & Reed Financial, Inc. Price, Consensus and EPS Surprise
Waddell & Reed Financial, Inc. Price, Consensus and EPS Surprise | Waddell & Reed Financial, Inc. Quote
Waddell & Reed sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Performance of Other Investment Managers and Upcoming Release
BlackRock, Inc.’s BLK fourth-quarter 2017 adjusted earnings of $6.24 per share outpaced the Zacks Consensus Estimate of $6.08. Results benefited from an improvement in revenues, rise in AUM and steady long-term inflows. However, increase in operating expenses acted as a headwind.
Ameriprise Financial Inc.’s AMP fourth-quarter 2017 adjusted operating earnings per share of $3.26 comfortably surpassed the Zacks Consensus Estimate of $3.09. Results benefited from an improvement in revenues as well as growth in AUM and assets under administration. However, a rise in expenses acted as a headwind.
The Blackstone Group L.P. BX is scheduled to come up with its financial numbers on Feb 1.
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