Waddell & Reed (WDR) Gains Despite Q2 Earnings Miss - Analyst Blog
Waddell & Reed Financial Inc.WDR reported second-quarter 2015 earnings per share of 80 cents, which missed the Zacks Consensus Estimate of 83 cents. Also, the reported figure came in 18% below the year-ago quarter.
Though rise in outflows negatively impacted the results, shares of Waddell & Reed increased over 1%, indicating broader positive market sentiments.
Lower revenues and higher operating expenses weighed on the results. Further, assets under management ("AUM") reflected weakness, while a fall in sales and higher outflows acted as headwinds.
Net income totaled $67.4 million, down 19% year over year.
Operating revenues inched down 2% year over year to $394.0 million, reflecting a decline in AUM. However, it surpassed the Zacks Consensus Estimate of $391.0 million.
Gross sales fell 23% year over year to $5.8 billion. Redemptions rose 8% from the prior-year quarter to $6.8 billion. Further, net outflows came in at $1.1 billion at the quarter-end, as against net inflows of $1.2 billion in the prior-year quarter.
At the Advisors channel , gross sales decreased 8% year over year to $1.3 billion. Net outflows totaled $76 million compared with net inflows of $271 million in the year-ago quarter.
At the Wholesale channel , gross sales declined 33% year over year to $3.2 billion. Net outflows amounted to $1.2 billion compared with net inflows of $104 million in the prior-year quarter.
Gross sales at the Institutional channel came in at $1.2 billion, up 1% from the year-ago quarter. Further, the segment witnessed net inflows of $200 million, down 76% from the year-ago quarter.
Operating expenses rose 2% year over year to $282.9 million. The rise was mainly caused by an increase in all expense components.
Operating margin stood at 28.2%, down from 30.9% in the prior-year quarter.
As of Jun 30, 2015, AUM totaled $120.7 billion, down 11% from Jun 30, 2014 due to net outflows, partly offset by positive market action.
At the end of the reported quarter, cash and cash equivalents as well as investment securities totaled $853.9 million. Moreover, long-term debt totaled $190.0 million and stockholders' equity was recorded at $845.7 million.
In the reported quarter, Waddell & Reed bought back 516.5 million shares for $25.4 million. Overall, the company returned $61.6 million to its shareholders in the form of dividends and share repurchases in the second quarter.
Waddell & Reed's pressurized top line and rise in outflows continue to raise concerns about the company's future prospects. Also, mounting expenses, a competitive landscape and unfavorable market conditions are anticipated to further aggravate the pressure on financials in the near-term.
However, the company remains well positioned for future growth, backed by its constant efforts toward development. Moreover, a strong balance sheet and effective capital deployment activities are expected to work in its favor.
At present, Waddell & Reed has a Zacks Rank #4 (Sell).
Among other investment management firms, Invesco Ltd. IVZ and Fortress Investment Group LLC FIG are scheduled to report earnings results on Jul 30, while Ares Management, L.P. ARES is slated to report on Aug 11.