Shares of MoneyGram International Inc. MGI rose 7.10% in the last trading session to close at $8.30 after the company reported its first-quarter 2015 adjusted earnings per share (EPS) of 11 cents, which surpassed the Zacks Consensus Estimate by a penny.
However, EPS plunged year over year by 70.2%. The decline was due to reduction in revenues that stemmed from the new U.S.-to-U.S. business, low pricing and increased competitive pressure.
Including adjustments, the company reported a net loss of $72 million or $1.16 per share comparing unfavourably with the year-ago net income of $39 million or 54 cents per share.
MoneyGram’s total revenue for the quarter was $330.6 million, down 11.8% from the year-ago period. While fee and other revenues decreased 10.9% to $327.7 million, investment revenues came in at $2.9 million, down from $7.2 million in the year-ago period.
Total operating expenses declined 2.7% year over year to $328.9 million. Total commission expenses declined 10.2% to $153.5 million. Subsequently, the company’s operating income decreased to $1.7 million as against $37 million in the year-ago quarter.
Interest expenses increased 14.4% from that in the prior year to $11.1 million. Total earnings before interest, taxes, depreciation and amortization (EBITDA) declined 49.7% year over year to $31.1 million, while adjusted EBITDA fell 30% to $54.6 million.
Quarterly Segment Results
In the Global Funds Transfer segment, revenues fell 11.2% year over year to $312.3 million. Money transfer fee and other revenues declined 12.1% year over year to $286.8 million.
Total money transfer transactions originating outside the U.S., however, surged 14% from the prior-year quarter. Additionally, U.S. outbound transaction increased 15%, reflecting double-digit growth for the 14th consecutive quarter. The improvement was driven by 12% growth in transactions to Mexico from the U.S.
MoneyGram’s transactions originating in the U.S. decreased 37%. However, this represented a sequential improvement over the 40% reduction in the fourth quarter of 2014. This improvement was attributable to the company’s new low pricing and innovative self-service product solutions. Excluding Walmart business, however, money transfer revenues grew 13% from the year-ago quarter.
Self-service money transfer revenues surged 45% from the prior-year quarter, representing 11% of money transfer revenues. Moreover, MoneyGram’s online money transfer transactions grew 21%, while revenues were up 11% from the prior-year quarter, driven by an increase in the number of customers.
As a result of lower revenues and higher expenses, adjusted operating margin deteriorated to 6.2% from 12.6% in the prior-year quarter.
In the Financial Paper Products segment, MoneyGram’s total revenue fell 21.1% year over year to $18.3 million, reflecting lower fee, other and investment revenues within both money order and official check sub-segments. Adjusted operating margin deteriorated to 39.3% from 46.6% in the year-ago quarter due to a 33.3% decrease in commission expenses in the reported quarter.
Liquidity
As of Mar 31, 2015, MoneyGram had cash and cash equivalents of $175.2 million (down from $250.6 million at year-end 2014) and total assets of $4.57 billion (down from $4.64 billion at the year-end 2014). The company exited the first quarter with $961.0 million of outstanding debt (down from $963.5 million at the end of 2014).
Due to the repositioning of U.S.-to-U.S. business, investments in the global transformation program and signing bonus payments, the company reported negative adjusted free cash flow of $34.3 million in the first quarter comparing unfavourably with the adjusted free cash flow of $46.7 million in the year ago quarter.
Outlook
MoneyGram’s full-year revenues are estimated to be flat on a constant currency basis, while adjusted EBITDA is anticipated to fall by 8–12%. The company expects the 2015 results for both revenue and Adjusted EBITDA to be lower in the first half of the year but to witness year-over-year double-digit constant currency growth in the fourth quarter.
Global Transformation Program
During the first quarter, MoneyGram incurred total cash outlays of $12.1 million as part of the compliance enhancement program that comprised of $5.5 million in operating expense and $6.6 million of capital expenditures. The company has already incurred total cash outlays of $61.1 million since the announcement of the program in Feb 2014. This comprised of $32.2 million in operating expense and $28.9 million in capital expenditures. Also, restructuring and reorganization cash outlays were $9.9 million, in the reported quarter.
The company now expects cash outlays to exceed its original projections of $5 million. It also anticipates total annualized savings of $25 million that exceeds the goal of $15–$20 million for 2015.
Zacks Rank
Currently, MoneyGram carries a Zacks Rank #3 (Hold).
Stocks to Consider
Better-ranked stocks in the financial sector like Global Cash Access Holdings, Inc. GCA, Blackhawk Network Holdings, Inc. HAWK and Euronet Worldwide, Inc. EEFT. While Global Cash Access sports a Zacks Rank #1 (Strong Buy), Blackhawk Network and Euronet hold a Zacks Rank #2 (Buy).
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