Q1 Earnings Beat at Western Union, Outlook Retained - Analyst Blog

The Western Union Company WU reported first-quarter 2014 operating earnings of 37 cents per share, higher than the Zacks Consensus Estimate of 35 cents but in line with the year-ago quarter number.
 
Western Union's total revenue of $1.35 billion was up 2% on a year-over-year basis, and increased 4% on a constant currency basis. The improvement came on the back of benefits from the previously implemented consumer money transfer pricing actions, and the investments in Digital and in Business Solutions. Reported revenues came in a tad higher than the Zacks Consensus Estimate.

Total expenses increased 5% year over year to $1.08 billion on account of higher cost of services as well as increased selling, general and administrative expenses.

Reported operating margin declined 230 basis points (bps) year over year to 20.1% due to increases in consumer-to-consumer retail commission rates, higher compliance expenses and consumer-to-business mix. The downside was however, partially offset by benefits from cost savings initiatives and lower integration costs.

Segment Update

Consumer-to-Consumer revenues of $1.08 billion were up 3%, and 4% on constant currency basis on the heels of pricing actions and promotions. Transactions increased 9%. Operating margin in the segment declined 250 bps year over year to 22.9%.

In the Consumer-to-Business segment, revenues of $147.2 million decreased 4% year over year, but was up 7% on constant currency basis. Operating margin in the segment declined 450 bps year over year to 20.2%.
 
Revenues at Western Union Business Solutions of $99.4 million scaled up 7%, or 10% on constant currency basis, led by solid performance from Australia and Canada and improved customers' use of hedging products. The segment's operating margin was (3.6%), improving from (6.7%) in the year-ago quarter.

Electronic Channel revenues, which include westernunion.com, digital and account-based money transfer through banks, surged 36% in the quarter and contributed 6% of the company's total revenue.

Financial Update

Western Union generated cash flow from operations of $196.8 billion in the first quarter. Capital expenditures were $18.2 million in the first quarter.

In the quarter, the company bought back 11 million shares for $180 million. The company also paid $68 million in dividends.

2014 Guidance Reaffirmed

For full-year 2014, Western Union projects low-to-mid single-digit constant currency revenue growth and earnings per share in the range of $1.40 to $1.50.

Cash flow from operating activities in 2014 is estimated at approximately $900 million, or $1 billion excluding anticipated final tax payments related to agreement with the Internal Revenue Service from 2011.

Western Union estimates its compliance-related expenses to comprise 3.5% to 4% of revenues in 2014.

The company's operating margins in 2014 are expected to range between 19% and 20%.

Zacks Rank

Western Union carries a Zacks Rank # 4 (Sell).  

Performances of Other Financial Transaction Service Providers

Total System Services Inc. TSS recently reported first-quarter 2014 operating earnings of 38 cents per share. While the bottom line was on par with the year-ago quarter figure, it missed the Zacks Consensus Estimate by 2 pennies.

Alliance Data Systems Corporation ADS reported adjusted earnings of $2.64 per share in the first quarter of 2014. Earnings topped the Zacks Consensus Estimate by 1.9% and were 12% above the year-ago figure.

MasterCard Inc. MA reported first-quarter 2014 operating earnings per share of 73 cents. The results beat the Zacks Consensus Estimate by a penny but outpaced the year-ago quarter figure of 62 cents. The EPS is post 10-for-1 common stock split effective Jan 21, 2014.