The Western Union Company WU reported third-quarter 2017 operating earnings per share of 53 cents, which surpassed the Zacks Consensus Estimate by 20%. Earnings also grew 12.8% year over year on higher revenues.
Behind the Headlines
Total revenues of $1.4 billion increased by 2% on a year-over-year basis but was up 3% on a constant currency basis. Revenues also surpassed the Zacks Consensus Estimate by 0.8%.
Western Union’s total expenses increased 3% year over year to $1.1 billion.
Adjusted operating margin of 20.6% in the quarter deteriorated 110 basis points (bps) from the prior-year period. The downside was caused by higher incentive compensation related expenses and increased marketing spending.
Segment Update
Consumer-to-Consumer(C2C)
Revenues for the segment increased 1% on both a reported and constant currency basis to $1.1 billion.
Total transactions grew 2%, driven by strength at westernunion.com.
Revenues from westernunion.com C2C increased 23% or 28% on both a reported and constant currency basis, on transaction growth of 24%. Notably, westernunion.com represented 10% of total C2C revenues in the quarter.
Operating income declined 6% year over year to $259.8 million. Operating margin declined 160 bps to 23.5%.
Business Solutions
Revenues increased 2%, or 1% on a constant currency basis year over year to $99.4 million.
The segment reported operating income of $9 million in the quarter, up 130%. Operating margin also improved 510 bps to 9.1%,
Other
Other segment primarily consists of the U.S. and Argentina bill payments businesses. Revenues increased 9% in the quarter, or 13% on a constant currency basis to $197.6 million.
The upside was driven by the Speedpay U.S. electronic and Pago Facil Argentina walk-in bill payments businesses.
Operating income grew 13% to $20.7 million and operating margin rose 40 bps to 10.5%, both on a year-over-year basis.
The Western Union Company Price, Consensus and EPS Surprise
Financial Update
Cash and cash equivalents as of Sep 30, 2017 were $1 billion, up 18% from $0.9 billion at 2016 end.
As of Sep, 2017, borrowings rose 27% to $3.5 billion from year-end 2016.
As of Sep, 2017, stockholders' equity was $709.4 million, down 21% from $902.2 million at year-end 2016.
For the first nine months of 2017, net cash from operations totaled $423.1 million, down 48% year over year.
Share Repurchase and Dividend Update
In the reported quarter, the company returned $180 million (consisting of $100 million of share repurchases and $80 million of dividends) to its shareholders.
2017 Guidance
Adjusted earnings per share is expected in a range of $1.75 to $1.85 compared with the previously guided range of $1.70 to $1.80.
Western Union expects growth of flat to low single digit decrease in GAAP revenues, or a low single-digit increase on a constant currency basis.
The company projects GAAP operating margin of approximately 17% and adjusted operating margin of roughly 20%, unchanged from the the previous guidance.
GAAP cash flow from operating activities is expected to be nearly $600 million, up from the previous projection of $200 million.
Zacks Rank and Stocks to Consider
Western Union carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
American Express Co. AXP, Discover Financial Services DFS and Alliance Data Systems Corp. ADS from the same space also came out with flying colors, with the bottom lines beating their respective Zacks Consensus Estimate in the third quarter.
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