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Waddell & Reed (WDR) Stock Down 3.7% Despite Q2 Earnings Beat

Waddell & Reed Financial Inc.’s WDR second-quarter 2020 earnings of 38 cents per share outpaced the Zacks Consensus Estimate of 34 cents. However, the bottom line declined 16% year over year.

The results reflect lower operating expenses. However, a decline in revenues and lower assets under management (AUM) balance owing to substantial outflows were major undermining factors. Perhaps due to these concerns, the company’s shares lost 3.7% following the earnings release.

Net income attributable to Waddell & Reed totaled $24.8 million, down 27% from the prior-year quarter.

Revenues & Expenses Down

Revenues declined 11% year over year to $240 million. A fall in all revenue components was witnessed during the quarter. Further, the figure lagged the Zacks Consensus Estimate of $251.7 million.

Gross sales grew 1% year over year to $2.2 billion. Redemptions were $3.6 billion, down from $4.5 billion in the prior-year quarter.

Operating expenses fell 5% on a year-over-year basis to $216.4 million.

Adjusted operating margin was 9.8%, down from 15.3% in the year-ago quarter.

As of Jun 30, 2020, AUM totaled $65 billion, down 10% year over year. Net outflows of $1.4 billion were recorded in the quarter.

As of Jun 30, 2020, the company’s cash and cash equivalents, and investment securities totaled $775.8 million. Stockholders’ equity was $776.7 million.

Performance of Distribution Channels

At the Unaffiliated channel, gross sales improved 15% year over year to $1.49 billion. Net outflows were $484 million compared with $847 million recorded in the year-ago quarter.

Gross sales at the Institutional channel were $52 million, down 4% from the year-ago quarter. The segment’s net outflows were $128 million compared with $361 million a year ago.

At the Wealth Management channel, gross sales decreased 18% year over year to $649 million. Net outflows totaled $837 million, up 27% from a year ago.

Share Repurchase Update

Waddell & Reed bought back 1.5 billion shares for $18.1 million during the quarter.

Our Take

The company’s focus on strengthening the Wealth Management channel is expected to support profitability over the long term. However, outflows and weak revenue growth are major near-term concerns.

Waddell Reed Financial, Inc. Price, Consensus and EPS Surprise

Waddell  Reed Financial, Inc. Price, Consensus and EPS Surprise

Waddell Reed Financial, Inc. price-consensus-eps-surprise-chart | Waddell Reed Financial, Inc. Quote

Waddell & Reed currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Asset Managers

SEI Investments Co.’s SEIC second-quarter 2020 earnings of 68 cents per share lagged the Zacks Consensus Estimate of 69 cents. Moreover, the figure reflects a decline of 17.1% from the prior-year quarter.

Cohen & Steers’ CNS second-quarter 2020 adjusted earnings of 54 cents per share missed the Zacks Consensus Estimate of 55 cents. Moreover, the bottom line was 12.9% lower than the year-ago reported figure.

Affiliated Managers Group Inc.’s AMG second-quarter 2020 economic earnings of $2.74 per share surpassed the Zacks Consensus Estimate of $2.70. However, the bottom line declined 17.7% year over year.

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