Waddell & Reed Financial Inc. (WDR) Q2 2010 Earnings Call July 28, 2010 10:00 am ET Executives Hank Herrmann - CEO and Chairman Nicole McIntosh - EVP of IR Mike Avery - President, CIO and Portfolio Manager Dan Connealy - SVP and CFO Tom Butch - EVP and CMO Analysts Jeff Hopson - Stifel Nicolaus Bill Katz - Citigroup Michael Kim - Sandler O'Neill Cynthia Mayer - Bank of America/Merrill Lynch Robert Lee - KBW Craig Siegenthaler -Credit Suisse Roger Freeman - Barclays Capital Mac Sykes - Gabelli & Company Marc Irizarry - Goldman Sachs Dov Hellman - Sidoti Presentation Operator
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» Waddell & Reed Financial, Inc. Q1 2010 Earnings Call Transcript
» Waddell & Reed Financial Inc. Q3 2009 Earnings Call Transcript
» Waddell & Reed Financial, Inc. Q1 2009 Earnings Call Transcript
Henry HerrmannThank you Nicole. This morning we announce our company’s second quarter results. Given significant headwinds created by difficult markets, results were solid. Earnings per share of $0.40 declined less then 5% sequentially. However, the decline was due to higher non-operating costs mainly losses on our investment portfolio and related higher tax rate offsetting these effects, earnings per share would have been on operating basis $0.43 per share. Let me back up here pretax income rose 3% on a sequential quarterly basis and operating income rose 6%. Our operating margin expanded the 24.2% compared to 23.3% in the first quarter, net flows were positive across all three distribution channels, equity net flows were positive while the industry experience significant equity outflows. Long term front performance was solid, year-to-date relative performance improved. For the first six months ended June 55% of equity funds and 62% of all of our portfolios beat their Lipper peers this compares with 47% of equity funds and 51% of all funds with the three months ended March 31. I should note that top to bottom dispersion of results in Lipper Groups is fairly narrow at this juncture. A condition that could well persist. The performance of our flagship fund the Ivy asset strategy improved and closed ahead of the S&P index by the end of the quarter. After being several hundred basis points or so behind earlier in the quarter. Within the wholesale channel, we continue to make progress in diversifying sales. During the quarter 26% of sales went to products other than our two lead funds. Next looking at the individual parts of our business, sales on our Advisors channel are near historic highs. The quarters $954 million represents an 8% sequentially increased and a 22% improvement compared to the same period in 2009. That close of a $100 million were positive for the fifth consecutive quarter.
Advisor productivity continues to improve and while we have significantly reduced Advisor headcount over the past few years, those remaining are meaningfully more productive. Our headcount has shrunk roughly one third from it's peak.Production is consistently exceeding the volumes achieved when the growth was larger. Market turmoil has had a more significant impact on our wholesale business. Sales of $3.5 billion declined 20% sequentially and 14% compared to the same period last year. Flows of $388 million remained positive however. Reduction pressure from a combination of poor investor sentiment and weak equity markets impacted overall flows. Few things are worth noting, first equity flows were positive and as we mentioned in our release provided accurate levels with the 1.9% organic growth while the industry suffered a 1.4% organic decay. Second, the challenges in the equity market provided us with an opportunity showcase, a solid line up of fixed income products. With 83% of our fixed income funds beating the Lipper Peers year-to-date, we are able to gain traction in the number of fixed income products and further diversify sales in the channel. Finally, our institutional channel delivered positive results largely due to sub-advisor relationships. Sub-advisory mandates were responsible for $662 million of the $768 million in gross sales during the quarter and essentially all of the net flows. The more traditional defined benefit side of our institutional planner channel remains positive. Post the quarter we won a sizable large cap growth mandate. During the quarter, we won several mandates but the net benefit was offset by Pictet outflows. Overall, our financial and operational results during the quarter were inline with our expectations despite market action which was not. I am confident that in the strength of our investment process in the parallel well diversified challenges distribution will allow us to continue to increase share. Operator at this time I would like to open the call for questions. Read the rest of this transcript for free on seekingalpha.com