Leading money transfer company, Western Union Co. (WU) reported fourth quarter 2012 operating earning of 42 cents per share, ahead of the Zacks Consensus Estimate of 35 cents per share. Earnings also compared favorably with 40 cents per share reported in the prior-year quarter.
Total revenue was $1.4 billion, in line with the Zacks Consensus Estimate. It remained unchanged relative to the year-ago quarter. Lower transaction fees offset the increase in foreign exchange revenues. Pro forma revenue decreased 1% constant currency, including a full quarter of Travelex Global Business Payments (TGBP) in the prior period. The company expects low single digit constant currency revenue declines in 2013.
Total expense was $1.14 billion, up 6% year over year led by an increase in cost of service as well as selling general and administrative expenses.
Full year results
Total revenue was $5.7 billion up 3% year over year, due to higher revenues from the Business Solutions segment.
EPS came in at $1.74 ahead of the Zacks Consensus Estimate of $1.67 per share, and higher 10.8% year over year.
Segment Update
In the Consumer-to-Consumer segment, reported revenues decreased 2% year over year to $1.15 billion, led by lower transaction as well as lower foreign exchange revenues. The company expects mid to high single digit transaction increases in this segment.
In the Consumer-to-Business segment, revenues decreased 1% year over year to $152 million, including a negative 3% impact from currency translation. South America continues to have steady growth, but this was offset by declines in U.S. walk-in business.
Business Solutions reported revenues of $92.6 million in the quarter, which increased 37.0% year over year. On a pro forma basis, including a full quarter of Travelex results in the prior year period, Business Solutions' constant currency revenue was down 2%. The company’s Business Solutions customer account continues to grow, and has expanded its presence in 30 countries compared to 23 in the year-ago period. Though the transactions are growing in double digits, principal amounts per transaction declined, indicating weak global trade conditions.
Electronic Channel revenues, which include westernunion.com, digital and account-based money transfer through banks, jumped 22% in the quarter. Electronic Channel now contributes 4% to the company’s total revenue, up from 3% in the year-ago quarter.
The company’s prepaid revenues increased 16% in the quarter. The prepaid business, including third-party top-up, represented approximately 1% of the company revenue. Prepaid cards were available at approximately 40,000 retail locations globally at the end of the quarter, including approximately 1,500 locations outside the U.S.
Cash flow from operations for the year was approximately $1.2 billion. Capital expenditures amounted to $85 million and included increases in agent signing bonuses, including some major renewals.
During the fourth quarter, the company made $351 million worth of share buybacks. It also declared $72 million in dividends.
Outlook
The company expects full year 2013, GAAP EPS in a range of $1.33 to $1.43. It expects cash flow from operating activities of approximately $900 million, or approximately $1 billion when adjusted for final tax payments relating to the IRS Agreement. Additionally the company expects to return nearly $700 million to shareholders in 2013 in the form of share repurchases and dividends.
Our Take
Western Union has taken a series of strategic growth steps. These include strengthening the consumer money transfer business, driving growth in customers and usage in Business Solutions and continuation of strong capital management.
Although the strategic actions are expected to negatively affect the short-term results in 2013, it will position the company for long-term revenue and profitability growth in the current environment. These strategic actions will result in a return to revenue and profit growth beginning 2014.
Though earnings will remain choppy in the near term, we remain confident of the long-term opportunities of the businesses of the company. Western Union is a leader in a growing market with a strong global brand, a large and growing agent network, a global organization with best payment capabilities and local market expertise.
Among other players in the industry – Moneygram International Inc. (MGI) reported in line with the Zacks Consensus Estimate, Coinstar, Inc. (CSTR) reported ahead of the Zacks Consensus Estimate while Monro Muffler Brake Inc. (MNRO) lagged the Zacks Consensus Estimate by a penny.
COINSTAR INC (CSTR): Free Stock Analysis Report
MONEYGRAM INTL (MGI): Free Stock Analysis Report
MONRO MUFFLER (MNRO): Free Stock Analysis Report
WESTERN UNION (WU): Free Stock Analysis Report
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