Waddell & Reed Financial Inc.
) fourth-quarter 2012 earnings from continuing operations reached
61 cents per share, slightly ahead of the Zacks Consensus
Estimate of 58 cents. This also compares favorably with earnings
of 46 cents in the prior-year quarter.
For full year 2012, earnings from continuing operations stood at
$2.25 per share, marginally above the Zacks Consensus Estimate of
$2.22. This compares with earnings of $2.01 per share in 2011.
Better-than-expected results benefited from augmented top line,
partially offset by higher expenses. Further, enhanced assets
under management (AUM) and solid balance sheet were among the
positives. Moreover, gross sales across all the revenue channels,
except Wholesale channel, decreased.
Net income from continuing operations for the reported quarter
came in at $52.4 million increasing 33.0% from $39.4 million in
the year-ago quarter. For 2012, net income stood at $192.5
million, up 11.8% from $172.2 million in 2011.
Performance in Detail
Waddell & Reed's operating revenues for the reported quarter
climbed 11.1% to $302.9 million from $272.6 million in the
year-ago quarter. Also, operating revenues marginally beat the
Zacks Consensus Estimate of $301.0 million by 0.6%.
For the full year, operating revenues were $1.2 billion, up 4.6%
from $1.1 billion in 2011. However, it missed the Zacks Consensus
Estimate by 4.8%.
Overall, gross sales increased 1.5% year over year to $5.1
billion. Redemptions were $5.6 billion, up 7.1% from $5.2 billion
in the prior-year quarter. Outflows were $165 million as against
inflows of $42 million in the prior-year quarter.
At the Advisors channel, revenues bolstered 13.3% year over year
to $83.1 million. Gross sales were reported at $1.1 billion,
surging 24.4% from $858 million in the year-ago quarter. Net
outflows came down to $75 million from $114 million in the
At the Wholesale channel, revenues improved 8.3% from the
prior-year quarter to $45.7 million. Similarly, gross sales
dipped 6.5% from the year-ago quarter to $3.5 billion. Net
outflows were $77 million compared with inflows of $153 million
in the prior-year quarter.
Gross sales at the Institutional channel came at $562 million,
jumping 23.2% from $456 million in the year-ago quarter. However,
this segment witnessed net outflows of $13 million compared with
inflows of $3 million in the year-ago quarter.
Waddell & Reed's operating expenses hiked 4.3% year over year
to $219.5 million. The increase was primarily due to higher
underwriting and distribution expenses along with compensation
and related costs.
Operating margin of 27.5% in the reported quarter improved from
22.8% in the prior-year quarter.
As of Dec 31, 2012, AUM totaled $96.4 billion, up 15.9% from
$83.2 billion as of Dec 31, 2011.
As of Dec 31, 2012, cash and cash equivalents and investment
securities (after payment of special dividend of $85 million)
stood at $504 million. Moreover, long-term debt totaled $190
million and stockholders' equity was recorded at $510 million.
During 2012, Waddell & Reed repurchased 1.5 million shares at
an aggregate price of $49 million.
Performance of Other Asset Mangers
T. Rowe Price Group, Inc.
) reported its fourth-quarter 2012 earnings, a penny below the
Zacks Consensus Estimate. Elevated operating expenses were the
primary reasons for the earnings miss. Yet, top-line growth and
increased assets under management (AUM) were the positives.
) fourth-quarter 2012 adjusted earnings substantially surpassed
the Zacks Consensus Estimate. The improvement was primarily
attributable to increased top line, partly offset by higher
operating expenses. Moreover, augmented AUM was the other
Waddell & Reed's sustained growth and history of boosting
shareholders' value through meaningful capital deployment
activities are impressive. However, the persistently volatile
equity markets and significant intangibles on its balance sheet
are expected to mar its profitability in the upcoming quarters.
Although we remain optimistic on the competitive ranking of
Waddell & Reed's funds and its efforts to control cost in the
upcoming quarters, irregular investment performance and rising
competition make us cautious.
Waddell & Reed currently retains a Zacks Rank #3 (Hold).
Virtus Investment Partners Inc.
) is a better performing stock in the financial sector carrying a
Zacks Rank #1 (Strong Buy).
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