MoneyGram Q3 Earnings Miss by a Penny

MoneyGram International Inc. (MGI) reported third-quarter 2013 earnings per share of 31 cents, missing the Zacks Consensus Estimate by a penny but improved 3.3% year over year.

The year-ago quarter incurred $1.07 cents per share from reorganization and restructuring costs and legal expenses. Including this, earnings of 31 cents rebounded from a loss of 77 cents incurred in the year ago quarter.

The year over year improvement came on the back of growth in money transfer and transaction volume and a solid expense management. Moreover, all the operating segments performed well to add to the improvement.

MoneyGram’s total revenue for the quarter was $383 million, reflecting double-digit year-over-year growth of 13.1% and an improvement of 12% on a constant currency basis. It also outperformed the Zacks Consensus Estimate of $370 million. Fee and other revenues increased 11.9% year over year to $375.8 million, whereas investment revenues improved 148.3% to $7.2 million.

MoneyGram’s total operating expenses dipped 8.5% year over year to $334.9 million, while total commission expense increased 17.3% to $178.7 million. Subsequently, operating income stood at $48.1 million, compared to an operating loss of $27.3 million in the year-ago quarter. Meanwhile, interest expense decreased 39% from the prior year to $10 million, reflecting the efficiency from the recent debt refinancing.

Segment Results

In the Global Funds Transfer segment, MoneyGram’s revenues grew 13% year over year to $359.5 million. Money transfer transaction volume increased 14%, driven by higher U.S. outbound sends, growth in sends originated outside the U.S. and higher U.S.-to-U.S. transactions. Money transfer revenue surged 15% year over year and 14% on a constant currency basis to $333.7 million showcasing double-digit growth for the 10th consecutive quarter.

Self-service and new channel money transfer revenues surged 35%, representing 6% of money transfer revenues. Moreover, MoneyGram Online money transfer and bill payment transaction volume jumped 46%, while revenues grew 30% over the prior-year quarter.

Further, global agent locations increased 14% over the prior-year quarter to 334,000. Bill payment transaction volume dipped 1% year over year, whereas revenues declined 3% to $26.5 million. As a result, operating margin dipped to 11.3% from 12.4% in the year-ago quarter owing to higher commission and compliance expenses. Even adjusted operating margin deteriorated to 12% from 14.2% in the year-ago quarter.

Total money transfer transactions originating outside the U.S. escalated 14% from the prior-year quarter. Transaction volume to Mexico increased 34% year over year. Additionally, MoneyGram’s transactions originating in the U.S. increased 8% year over year, while U.S. outbound transaction increased 20% over the prior-year period.

In the Financial Paper Products segment, MoneyGram’s total revenue increased 15% year over year to $23.3 million, reflecting an increase in investment revenue. Subsequently, operating margin increased to 45.1% from 36.9% in the year-ago quarter, despite a 25% fall in the commission expenses to $0.3 million. Additionally, adjusted operating margin increased to 46.4% from 39.4% in the year-ago quarter.

Liquidity Update

As of Sep 30, 2013, MoneyGram had cash and cash equivalents of $2.2 billion (down from $2.68 billion at 2012-end), net receivables of $959.7 million (down from $1.21 billion at year end 2012) and available-for-sale investments of $50.7 million (down from $63.5 million at 2012-end).

As of Sep 30, 2012, MoneyGram had debt obligations worth $845 million (up from $809.9 million at 2012-end), while assets in excess of payment service obligations were $309.7 million (up from $227.9 million at year end 2012).

Free cash flow increased 92.3% year over year to $47.3 million. The upside was primarily driven by strong improvement in top line and Earnings before interest, tax, depreciation and amortization (:EBITDA), efficient expense management, and decline in agent signing bonuses and debt interest payments.

Guidance

MoneyGram’s management reaffirmed the 2013 guidance and expects total revenue to grow 7–10% on a constant currency basis. Adjusted EBITDA growth was also reaffirmed in the band of 3–6%.

Our Take

MoneyGram missed our earnings expectation, but surpassed the year-ago numbers. However, top line fared well on both counts. Higher money transfer transaction volumes, higher fee and other revenues drove the top line, whereas lower operating and interest expenses supported the bottom line and free cash flow. Strong free cash flow helped MoneyGram to undertake product launches and acquisitions that poise the company for long term growth.

Further, MoneyGram has entered into agreements with a number of players from various industries to expand its network. Of particular importance in this regard are the contracts with the Mexican drugstore chain Farmacias Guadalajara, Italian provider of postal, financial, insurance and mobile telephony solutions Poste Italiane and U.K.’s independent foreign exchange broker MoneyCorp, to name a few. All such global expansion initiatives position MoneyGram to capitalize on the opportunities provided by various industries and enhance company growth going forward. MoneyGram currently carries a Zacks Rank #1 (Strong Buy).

Others in the Financial Sector

American Express Co. (AXP) also known as AmEx, reported its third-quarter 2013 operating earnings per share of $1.25. The result comfortably surpassed both the Zacks Consensus Estimate of $1.22 and the year-ago quarter earnings of $1.09 a share.

Among other players in the financial sector FleetCor Technologies Inc. (FLT) and Portfolio Recovery Associates Inc. (PRAA), both carrying a Zacks Rank #2 (Buy) are scheduled to release their third quarter results shortly.

Read the Full Research Report on MGI
Read the Full Research Report on AXP
Read the Full Research Report on PRAA
Read the Full Research Report on FLT


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