The Western Union Company (WU) reported second-quarter 2014 operating earnings of 36 cents per share, which was in line with the Zacks Consensus Estimate as well as the year-ago quarter earnings.
Though the expense increase overshadowed the revenue improvement, a lower share count negated the downside.
Total revenue of Western Union came in at $1.41 billion, missing the Zacks Consensus Estimate by 2.7%. However, results improved 1% year over year or 3% on a constant currency basis. Implementation of strategic actions for consumer money transfer helped the company return to the growth trajectory
Western Union’s total expenses were $1.13 billion, up 2% year over year owing to increase in cost of service as well as selling, general and administrative expenses.
In the Consumer-to-Consumer segment, revenues increased 2% year over year to $1.13 billion due to increase in transaction fees, foreign exchange revenues and other revenues. Transaction growth was the result of the pricing strategies and a solid increase of 46% in the westernunion.com online money transfer transaction. The operating income remained flat year over year in the reported quarter.
In the Consumer-to-Business segment, revenues declined 5% year over year to $145.9 million, led by a decrease in transaction fees, and foreign exchange and other revenues. The segment reported a 25% decline in operating income to $23.6 million.
Business Solutions recorded revenues of $98.2 million in the quarter, flat year over year. The segment’s operating loss narrowed to $3.3 million from a loss of $7.3 million in the year-ago quarter.
Electronic Channel revenues, which include westernunion.com, digital and account-based money transfer through banks, increased 27% in the quarter.
Western Union ended the quarter with 500,000 agent locations in 200 countries with over 100,000 ATMs.
Western Union exited the quarter with cash and cash equivalents of $1.6 billion, down 22.6% form Dec 31, 2013.
Total assets declined 2.4% to $9.9 billion in the reported quarter from Dec 2013-end.
Western Union’s cash flow from operations was $450 million in the first six months of 2014, down 5.7% year over year.
With $143 million of share buyback and $66 million of dividend, Western Union returned $457 million to shareholders in the reported quarter.
In July, Western Union’s board of directors declared a quarterly cash dividend of 125 cents per share, payable Sep 30 to shareholders of record on Sep 15.
Western Union raised the lower end of its guidance by 5 cents. The projection is thus revised to $1.45–$1.50 from $1.40–$1.50 guided earlier. The company expects cash flow from operating activities of approximately $1 billion, up from $900 million.
Constant currency revenues are expected to increase in the range of low to mid single digits in 2014.
Western Union anticipates its compliance-related expenses to rise in the band of 3.5–4% of revenues in 2014.
GAAP operating margin is expected to be 19.5% to 20% (up from the prior projection of 19% to 20%)
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) outperformed the Zacks Estimate Consensus and also improved year over year in the second quarter of 2014.