Waddell & Reed Financial Inc.
(
WDR
) reported adjusted second-quarter earnings of 52 cents per share,
missing the Zacks Consensus Estimate by a penny. However, this
compares unfavorably with earnings of 55 cents in the prior quarter
and 58 cents in the prior-year quarter.
After considering an impairment of certain capitalized software
development costs, net income for the reported quarter came in at
$41.7 million, down 12.0% sequentially and 16.5% year over year.
Results, on a year-over-year basis, were adversely impacted by
lower operating revenues and higher expenses. Further, gross sales
across all the revenue channels, except Advisory channel decreased.
Nevertheless, stable assets under management (AUM) and solid
balance sheet were among the positives.
Performance in Detail
Waddell & Reed's operating revenues for the reported quarter
were $308.2 million, up 0.5% from $306.6 million in the prior
quarter but down 0.6% from $309.9 million in the year-ago quarter.
Further, operating revenues lagged the Zacks Consensus Estimate of
$314.0 million.
Overall, gross sales fell 10.4% sequentially and 5.2% year over
year to $5.5 billion. Redemptions were $5.6 billion, up from $5.0
billion in the prior quarter and $4.3 billion in the year-ago
quarter. Inflows deteriorated significantly from $1.3 billion in
the prior quarter and $1.7 billion in the prior-year quarter to
$376 million.
At the Advisors channel, revenues grew 4.0% sequentially and 7.9%
year over year to $79.8 million. Gross sales for the quarter were
$1,046 million, up 1.6% from $1,030 million in the prior quarter
and 3.5% from $1,011 million in the year-ago quarter. Net inflows
were $183 million compared with $158 million in the first quarter
of 2012 and $25 million in the second quarter of 2011.
At the Wholesale channel, revenues dipped 1.1% from the prior
quarter and 5.0% from the prior-year quarter to $60.2 million.
Similarly, gross sales decreased 12.8% from the prior quarter and
8.2% from the year-ago quarter to $3.9 billion. Net inflows also
drastically plummeted from $970 million in the prior quarter and
$1.8 billion in the prior-year quarter to $626 million.
Gross sales at the Institutional channel were $567 million, down
13.0% from $652 million in the prior quarter and 2.0% from $556
million in the year-ago quarter. Net outflows during the quarter
were $433 million compared with net inflow of $175 million in the
prior quarter and net outflows of $125 million in the year-ago
quarter.
Waddell & Reed's operating expenses (excluding the
abovementioned charge) increased 0.3% sequentially and 1.6% year
over year to $234.7 million. Both sequential and year-over-year
increases were primarily due to higher underwriting and
distribution expenses.
Operating margin (adjusted) was 23.9% in the reported quarter
compared with 23.7% in the prior quarter and 25.5% in the
prior-year quarter.
As of June 30, 2012, AUM totaled $89.1 billion compared with $93.8
billion as of March 31, 2012 and $91.7 billion as of June 30, 2011.
Balance Sheet
As of June 30, 2012, cash and cash equivalents and investment
securities were $505 million. Moreover, long-term debt totaled $190
million.
Our Viewpoint
Waddell & Reed's sustained growth and history of boosting
shareholders' value through dividend hike and share repurchase
activities are impressive. However, persistently volatile equity
markets and significant intangibles on its balance sheet are
expected to mar profitability in the upcoming quarters.
Though we remain optimistic considering the competitive ranking of
Waddell & Reed's funds and its efforts to control cost in the
upcoming quarters, irregular investment performance and rising
competition obscure our outlook.
Waddell & Reed currently retains a Zacks #4 Rank, which
translates into a short-term Sell rating. However, considering the
fundamentals, we also maintain a 'Neutral' recommendation on the
stock.
One of the peers of Waddle & Reed,
Eaton Vance Corp.
(
EV
) is expected to announce its fiscal third quarter 2012 (ended June
30) results on August 13.
EATON VANCE (EV): Free Stock Analysis Report
WADDELL&REED -A (WDR): Free Stock Analysis
Report
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