WU Reports In Line, Affirms Outlook - Analyst Blog
April 24 2012 - 7:40AM
Zacks
The world’s leading money transfer company, Western
Union Co. (WU), reported first quarter operating earnings
of 40 cents per share, in line with the Zacks Consensus Estimate.
Earnings increased 14% on a year–over-year basis, mainly on the
back of strong margin improvement in the Global Business Payments
unit and lower share count.
Western Union’s revenues for the quarter were $1.4 billion, up
9% year over year but down 2.8% from the Zacks Consensus Estimate.
The year-over-year upside in revenue was attributable to a 26% hike
in foreign exchange revenues, 4% increase in transaction fee and a
3% rise in other revenues.
Total expenses for the quarter increased 9% year over year to
$1.1 billion, due to a 24% surge in selling, general and
administrative expense and a 5% jump in cost of services.
Segment Details
The Consumer-to-Consumer (C2C) segment, which accounts for 81%
of the company’s revenues, reported revenues of $1.13 billion, up
4% year over year. The year-over-year revenue upside was based on a
respective 5%, 6%, 7% and 2% growth in North Americas, Middle East
and Africa, Asia Pacific, Latin America and Carribean regions.
Revenue from the European and CIS region, however, remained flat
year over year, mainly due to the struggling Eurozone economy.
The number of transactions increased 7% year over year to 56.37
million, with transaction volume increasing the most in Middle East
and Africa region up 9%, followed by 8% growth in Latin America and
6% growth each in North America and APAC regions. In the
European region transaction volume remained flat on a
year-over-year basis.
The Global Business Payments segment revenues upped 24% year
over year to $242 million, led primarily by a threefold increase in
Business Solutions revenue and a 1% increase in the
Consumer-to-Business revenue. Business Solutions revenue witnessed
higher foreign exchange revenue during the quarter, stemming
primarily from the Travelex Global Business Payments (TGBP)
acquisition that was completed on November 7, 2011.
Electronic channels, which accounts for nearly 3% of the
company’s revenues, performed strongly and reported year-over-year
growth of 38%. The company is highly focused on developing this
channel. The announcement of the formation of a new business unit,
the Western Union Ventures last year was a step toward this
direction. The new unit houses all the electronic offerings such as
Westernunion.com, prepaid and mobile money transfer.
Consolidated operating margin stood at 23.9% compared with 26.3%
in the comparable period last year.
Western Union expanded its retail agent location count to
495,000 from 455,000 in the year-ago quarter. The company is intent
on further adding to its agent location count and aims to reach the
1 million mark going forward. This is expected to benefit the
company from long-term demographic trends, which would support
migrant flows and remittance growth over time.
Western Union follows a strong cash deployment strategy.
During the quarter, the company bought back shares worth $147
million.
Key Events in 1Q
- Launched WU Pay, an electronic payment platform for
facilitating online transactions.
- Partnered MTN Group to launch mobile money in Uganda.
- Expanded online payments services in Austria, Belgium,
Netherlands and Sweden.
- Collaborated with Roshan to introduce mobile money transfer in
Afghanistan.
Outlook Affirmed for 2012
Management maintained its original guidance provided while
reporting its fiscal earnings in February. The guidance included
constant currency revenue growth in the range of 6%–8%, operating
margin of 26%, earnings per share in the range of $1.70–$1.75, and
operating cash flow in the range of $1.2–$1.3 billion.
Our Take
We are impressed with Western Union’s continuing solid
performance over the past several quarters.
We expect the company to maintain the same trend for the rest of
fiscal 2012, given the vigour with which it is developing its
business. Western Union is primarily intent on developing three
main areas. These include expanding the existing network and
increasing focus on retaining and adding new customers for the
consumer money transfer business; developing a digital
infrastructure to drive its electronic channels business and
creating the B2B segment apart from ensuring successful integration
of the Travelex business.
Given the company’s acquisition spree, agent network expansion
and new products and services roll out, we expect the company to
evolve from a transaction-based to a truly customer-centric
organization within a short span, thus offering added convenience
and more choice to its consumers.
Western Union currently retains a Zacks # 2 Rank, which
translates into a short-term ‘Buy’ rating. However, we are
maintaining our long-term “Neutral” recommendation on the
shares.
The company closely competes with MoneyGram
International Inc. (MGI) which is scheduled to release its
first quarter earnings day on April 26, 2012.
MONEYGRAM INTL (MGI): Free Stock Analysis Report
WESTERN UNION (WU): Free Stock Analysis Report
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