Waddell & Reed Financial Inc.’s (WDR) first-quarter earnings of 42 cents per share came in a penny short of the Zacks Consensus Estimate. However, this compares favorably with earnings of 18 cents in the prior-year quarter.
Net income for the reported quarter came in at $35.9 million, compared with $15.5 million in the prior-year quarter. Despite the sluggish economic environment, Waddell & Reed witnessed an improvement in its sales volume across all revenue channels except Advisors, which experienced slightly lower gross sales compared with the prior quarter.
Results were also aided by higher net inflows, growth in assets under management and improvement in operating margin. Higher operating expenses were the downside.
Quarter in Detail
Waddell & Reed’s operating revenues for the reported quarter increased 2.8% sequentially and 42.4% year-over-year to $251.6 million. Net operating margin increased to 23.3% from 21.3% in the prior quarter and 17.4% in the prior-year quarter.
In the Advisors channel, revenue remained almost flat sequentially but increased 27.7% from the year-ago quarter to $60.5 million. Sequentially, higher front-load commission and asset allocation product fees were offset by lower insurance and variable annuity commissions.
In the Wholesale channel, revenue increased sequentially as a result of higher asset-based service and distribution fees. Higher sales volume by Legend advisors also added to revenues.
Waddell & Reed’s operating expenses were flat sequentially but increased 32.3% year-over-year to $193.0 million. The year-over-year increase was primarily attributable to higher underwriting and distribution costs, sub-advisory fees, general & administrative expenses and compensation costs.
As of Mar 31, 2010, assets under management were $74.2 billion, compared with $69.8 billion at the end of the prior quarter and $47.6 billion at the end of the prior-year quarter. Net inflows were $2.8 billion, compared with $2.7 billion in the prior quarter and $1.0 billion in the prior-year quarter. Redemptions for the reported quarter increased 11.3% sequentially and 30.6% year-over-year to $3.4 billion.
Though we expect that Waddell & Reed will be able to maintain its strong growth with increasing assets under management as a result of solid investment and sales performance, increasing operating expenses and significant intangibles on its balance sheet will drag profitability in the upcoming quarters.
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