The Western Union Company WU reported second-quarter 2015 operating earnings per share (EPS) (excluding the impact of the previously announced Paymap settlement agreement with the Consumer Financial Protection Bureau) of 41 cents per share that beat the Zacks Consensus Estimate by 5.1%. Earnings were also up 13.9% year over year.
Western Union’s better-than-expected EPS was backed by operating margin expansion, a lower effective tax rate, and lower share count due to share buy backs.
Total revenue of Western Union came in at $1.38 billion, which was above the Zacks Consensus Estimate of $1.35 billion. The top line, however, was down 2% year over year due to a 4% decline in transaction fees, partly offset by an increase in foreign exchange and other revenues. On a constant currency basis, revenues improved 4%.
Western Union’s total expenses were $1.32 billion, in line with the year-ago quarter. This was primarily due to a rise in selling, general and administrative expenses that was offset by a decline in the cost of services.
Operating margin improved 90 basis points to 20.7% in the quarter. The improvement was backed by cost-saving initiatives and the net impact of foreign currency movements but was partially offset by an expected increase in incentive compensation, compliance and technology costs.
Segment Update
The Consumer-to-Consumer segment, which contributes nearly 80% to the company’s top line, reported a 3% decrease in revenues to $1.10 billion due to a decline in transaction fees. Operating income of $256.6 million was in line with the year-ago quarter.
In the Consumer-to-Business segment, revenues increased 8% year over year to $157.9 million. The segment reported a loss of $6.4 million that compared unfavorably with an income of 23.6 million in the prior-year quarter.
Business Solutions recorded revenues of $97.6 million in the quarter, down 1% year over year. The segment reported operating loss of $0.4 million, narrower than a loss of $3.3 million in the year-earlier quarter.
Electronic Channel revenues, which include contribution from westernunion.com, digital and account-based money transfer through banks, increased 19% in the quarter compared with a 27% increase a year ago.
Financial Update
Cash and cash equivalents as of Jun 30, 2015 were $1.63 billion, down 8.6% from the 2014 end-level.
As of Jun 30, 2015, borrowings increased to $3.73 billion compared with $3.72 billion as of Dec 31, 2014.
As of Jun 30, 2015 stockholders' equity rose 0.5% to $1.3 billion from the 2014 end-level.
As of Jun 30, 2015, Western Union reported cash flow from operating activities of approximately $465.7 million compared with $450.1 million as of Dec 31, 2015.
The company returned $235 million to shareholders through dividends and share repurchases.
Updated 2015 Guidance
Western Union updated its previous guidance for the full year. The company expects low mid-digit increase in revenues on constant currency basis compared with the previously announced low single-digit increase. The company also expects low to mid-single digit decrease in GAAP revenues. The company expects adjusted EPS in a range of $1.60–$1.67, up from the previously-guided range of $1.58–$1.65. GAAP EPS is expected in the range of $1.55–$1.62.
The company expects cash flow from operating activities worth $1 billion (excluding $100 million of anticipated final tax payments related to the agreement announced with the U.S. Internal Revenue Service in Dec 2011.)
Zacks Rank
Western Union currently holds a Zacks Rank # 2 (Buy).
Performance of Other Financial Transaction Services Providers
Other stocks from the insurance space, such as MGIC Investment Corp. MTG, Assurant Inc. AIZ and The Hartford Financial Services Group, Inc. HIG, outpaced the Zacks Consensus Estimate for second-quarter earnings.
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