Global money transfer and payment services company, Western Union Co. (WU), has posted second quarter 2011 earnings of 42 cents per share, beating the Zacks Consensus Estimate by 5 cents, on the back of a strong margin improvement led by its Consumer-to-Consumer (C2C) segment. Earnings per share has also surpassed 36 cents recorded in the prior-year period.
Western Union’s revenues for the quarter were $1.4 billion, up 5% year over year. A 12% hike in foreign exchange revenues, coupled with a 6% increase in transaction fees and a 5% growth in other revenues, accounted for the revenue upside.
The C2C segment, which generates most of the company’s revenues (85%), reported revenues of $1.2 billion, up 5% year over year, led by an 8% increase in both International and Americas regions and a 16% increase in the Asia-Pacific region, along with an 8% growth in Europe, Middle East, Africa, S.Asia (EMASA) region.
The number of transactions grew 6% year over year to 56.31 million owing to 5%, 4%, 7% and 12% transaction growths from International, EMASA, Americas and Asia-Pacific markets, respectively.
The Global Business Payments segment’s revenues upped 4% year over year to $186.7 million. Transactions grew 8% year over year and the Bill Payments revenue increased 2%, after seeing negative growth over the past several quarters. Business Solutions revenue also witnessed a 14% hike.
Consolidated operating margin was 25.7%, up 130 basis points year over year. Excluding restructuring charges, the consolidated operating margin stood at 26.3%, down from 27.1% in the last year quarter.
Western Union grew its retail agent location count to 470,000 from 430,000 last year. It plans to add another 30,000 to 40,000 agent locations in 2011, to harvest growth from the long-term demographic trends, which would support migrant flows and remittance growth over time.
Acquisitions during the quarter
Earlier during the month, Western Union announced to buy Travelex’s foreign-exchange business for approximately $1 billion.
In June, the company announced the acquisition of Finint S.r.l., one of its leading money transfer network agents in Europe.
Other introductions
During the quarter, Western Union announced that it would launch a Western Union Money Transfer Receive Card, which would set in a hassle-free way to receive money transfer from across the globe.
Geographical Expansion
During the second quarter, Western Union announced to launch its international business payments service in Peru through A. Serviban S.A., an agent for the company. Peru houses a diverse range of industries and offers opportunities for cross border trade, which necessitates the requirement for payments across the globe. Thus, management eyes Peru as an attractive market.
It has also introduced its international business payments service in the UAE through a 5 year agreement with Emirates International Exchange, a leading exchange house in the Middle East. This also marked Western Union’s debut in the Middle East.
Western Union also announced its expansion in Philipines by partnering with Petnet Inc. to provide its international business payment service in the region. Owing to its growing imports, Philippines offer a unique opportunity for Western Union to extend its international business service to the local business owners who conduct cross border trades.
Raised Outlook for 2011
Led by the solid earnings, management has made an upward revision to the 2011 guidance; it now expects constant currency revenue to grow in the range of 4–5% as against 3–4% projected earlier. Management has also raised its 2011 adjusted earnings per share guidance to $1.53–$1.58 range from previously forecasted $1.47–$1.52 range.
Besides, management guided that the company would generate $1.2–$1.3 billion of cash flow from operations, in line with the previous guidance. However, operating income margins are projected to contract to 25–25.5% range (or 26–26.5% excluding restructuring charges). The downward revision is based on the deal costs related to the Travelex acquisition and the foreign exchange impact.
DividendUpdate
During the second quarter, Western Union hiked dividend by 14% to 8 cents per share. Prior to this, the company had increased dividend in the fourth quarter of 2010 by 16.67% to 7 cents per share.
Our Take
In our view, Western Union is poised for long-term growth, which is validated by the combination of demographic trends, new market opportunities, and its advantages of scale. The company is aggressively expanding in the global remittance market. This is supported with a continued strong cash flow, allowing shareholders to be rewarded with acquisitions, share buybacks and increased dividends.
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