Western Union Q3 Earnings Beat Estimates, Ups ’14 EPS

The Western Union Company (WU) reported third-quarter 2014 operating earnings per share (EPS) of 44 cents per share, which were ahead of the Zacks Consensus Estimate of 39 cents. Earnings were also up 13% on a year-over-year basis.

Western Union’s better-than-expected EPS were driven by revenue growth across all its segments, along with tight expense management.

Total revenue of Western Union came in at $1.48 billion, which surpassed the Zacks Consensus Estimate by 3.5%. Revenues increased 5% year over year.

Western Union’s total expenses were $1.13 billion, 1% higher year over year due to an increase in cost of service.

Segment Update

In the Consumer-to-Consumer segment, revenues increased 4% year over year to $1.17 billion led by an increase in transaction fees, foreign exchange revenues and other revenues. Operating income increased 6% year over year $286.1 million.

In the Consumer-to-Business segment, revenues increased 11% year over year to $168.5 million, led by higher foreign exchange and other revenues, partly offset by a decrease in transaction fees. The segment reported a 21% decline in operating income to $23.2 million.

Business Solutions recorded revenues of $104.2 million in the quarter, up 3% year over year. The segment’s operating loss narrowed to $0.2 million from a loss of $2.8 million in the year-ago quarter.

Electronic Channel revenues, which include westernunion.com, digital and account-based money transfer through banks, increased 21% in the quarter.

Western Union ended the quarter with 500,000 agent locations in 200 countries with over 100,000 ATMs.

Financial Update

Western Union exited the quarter with cash and cash equivalents of $1.7 billion compared with $1.6 billion in the previous quarter.

Total assets declined 2.7% to $9.8 billion in the reported quarter from year-end 2013.

With $122 million of share buyback and $66 million of dividend, Western Union returned $188 million to shareholders in the reported quarter.

2014 Guidance Update

Western Union raised the EPS outlook to $1.50 from $1.45–$1.50 guided previously. The company affirmed cash flow from operating activities of approximately $1 billion.

Western Union has retained its growth projection of low-to-mid single digits for constant currency revenues and flat-to-low single digit for GAAP revenues.

The company anticipates compliance-related expenses at 3.5% of revenues for 2014, down from the previous range of 3.5–4% of revenues.

GAAP operating margin is expected at 20% (up from the prior projection of 19.5% to 20%).

Zacks Rank

Western Union currently carries a Zacks Rank #4 (Sell).

Performance of Other Financial Transaction Services Providers

Among other players in the same sector, Equifax Inc. (EFX), Alliance Data Systems Corporation (ADS) and Total System Services Inc. (TSS) have outperformed the Zacks Consensus Estimate.