Why is Waddell & Reed (WDR) up 5.9% since its last earnings report?

It’s been about a month since Waddell & Reed Financial’s (WDR) last reported earnings. Shares are up about 5.9% in that time, outperforming the S&P 500.

Will the recent positive trend continue into its next earnings release, or is Waddell & Reed headed for a pullback? Before we dive into how investors and analysts have reacted recently, let’s take a quick look at the latest earnings report to better understand the important factors.

Waddell & Reed beats Q3 results, revenues grow

Waddell & Reed’s third-quarter 2018 earnings of 58 cents per share topped the Zacks Consensus Estimate of 57 cents. The result also compares favorably to the year-ago quarter’s earnings of 64 cents.

Results benefited from improved revenues. Expenses remained stable year-over-year in the reported quarter. However, a decline in AUM was a major headwind. In addition, all distribution channels saw outflows.

Net income attributable to Waddell & Reed totaled $46.3 million, down 13.6% compared to the same quarter last year.

Revenues are growing and expenses are stable, AUM is falling

Operating income increased 2% year over year to $295.1 million, reflecting an increase in issuance and distribution fees. The figure also surpassed the Zacks Consensus Estimate of $293.8 million.

Gross sales declined 11.7% year over year to $2.55 billion. Redemptions declined 19.4% to $4.57 billion. Net outflows were $2.03 billion at the end of the reported quarter, compared with $2.79 billion at the end of the prior-year quarter.

Operating expenses were relatively flat year over year at $235.6 million. Almost all expense components, except distribution costs, depreciation and amortization costs and sub-advisory fees, declined.

The operating margin was 20.2%, up from 18.6% in the same quarter last year.

As of September 30, 2018, assets under management totaled $79.54 billion, down 1.7% year-over-year.

As of September 30, 2018, the Company’s cash and cash equivalents and investment securities totaled $858.9 million. Long-term debt was $94.8 million and shareholders’ equity was $893.5 million.

Distribution channel efficiency

On Broker-Dealer channel, gross sales fell 14.6% year over year to $874 million. Net outflows totaled $1.10 billion, down from $1.24 billion in the same quarter a year earlier.

On Independent distribution channel, gross sales fell 11.2% year over year to $1.59 billion. However, net outflows were $476 million, down from $483 million in the year-ago quarter.

Gross Sales In Institutional channel amounted to USD 83 million, an increase of 22.1% compared to the same quarter last year. The segment recorded a net outflow of USD 452 million, a decrease compared to USD 1.07 billion recorded in the same quarter last year.

Share buyback

During the reported quarter, Waddell & Reed repurchased 1.4 billion shares for $28.4 million.

How have estimates changed since then?

It turns out that the latest estimates have shown an upward trend over the past month.

VGM Results

Waddell & Reed currently has a strong Growth Score of A, although it falls far short in terms of its Momentum Score, earning a grade of C. Similarly, the company has a grade of B on the Value side, placing it in the second quintile of this investment strategy.

Overall, the stock has a composite VGM Score of A. If you’re not focused on a single strategy, this rating should interest you.

Perspectives

The stock’s estimates are trending higher, and the magnitude of this revision looks promising. Interestingly, Waddell & Reed has a Zacks Rank #3 (Hold). We expect the stock to deliver consistent returns over the next few months.

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