It has been about a month since the last earnings report for Western Union (WU). Shares have added about 3.4% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Western Union due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Western Union Misses Q1 Earnings & Revenue Estimates
The Western Union Company reported first-quarter 2019 operating earnings of 39 cents per share, missing the Zacks Consensus Estimate by 7.14%. The same was down 13.3% year over year.
Earnings were hurt by lower revenues, and higher expenses and effective tax rate.
Behind the Headlines
Total revenues of nearly $1.3 billion missed the Zacks Consensus Estimate by 3.7% and declined 4% on a year-over-year basis but were up 2% on a constant-currency basis. Weakening of Argentine Peso led to a decline in revenues, which was partly offset by positive effects of inflation in the company’s Argentina-based business.
Total operating expense of $1.09 billion was down 3% year over year due to a decline in cost of services.
Total operating margin of 18.8% declined 30 basis points year over year.
Revenues of $1.06 billion declined 3% on a reported basis but remained unchanged on a constant-currency basis. Total transactions grew 2%, driven by strength at westernunion.com.
Region-wise growth in U.S outbound business and sends originated in Latin America was offset by declines in U.S. domestic money transfer and sends originated in the Middle East and Asia Pacific. Operating income of $233.3 million declined 3% year over year.
Revenues from westernunion.com C2C improved 17% on a reported basis and 19% on a constant-currency basis. Notably, westernunion.com represented 13% of total C2C revenues in the quarter under review.
Revenues decreased 1% on a normal basis, but were up 4% on a constant-currency basis year over year to $95.6 million, driven by growth in Asia Pacific and Europe.
The segment reported operating income of $8.6 million, compared with $2.8 million in the year-ago quarter.
Other segment primarily consists of the U.S. and Argentina bill payments businesses. Revenues slipped 9% to $184.5 million.
Operating income declined 55% to $9.3 million and operating margin contracted 510 bps to 9.3%, both on a year-over-year basis.
Balance Sheet (As of Mar 31, 2019)
Cash and cash equivalents were $833.1 million, down 14% year over year.
Borrowings declined nearly 1.8% year over year to $3.4 billion.
Stockholders' equity was a deficit of $374.2 million, compared with stockholder’s equity deficit of $309.8 million at year-end 2018.
At the end of the quarter, the company generated net cash of $239.6 million from operations, up 80% year over year.
Share Repurchase & Dividend Update
In the reported quarter, the company returned $260 million in share buybacks and dividend payment to its shareholders.
The company expects to sell its business Speedpay U.S. domestic bill payments for nearly $750 million this month. It has also successfully completed the sale of its Paymap mortgage payment services in May 2019.
These efforts reflect the company’s efforts to streamline operations by focusing more on core business area of cross-border, cross-currency money movement.
The company expects to utilize approximately $600 million in cash proceeds, available from the transactions for a combination of share repurchase and net debt reduction over the next 12 months.
The sale of these businesses will have the dilutive effect to the tune of 10 cents on 2019 and 2020 earnings per share.
2019 Guidance Update
The company expects revenue growth of low single-digit (on a constant currency basis), GAAP operating margin of approximately 20%, EPS in a range of $2.66 to $2.76 (versus $1.83 to $1.95) and cash flow from operating activities of approximately $950 million (versus $1 billion earlier).
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
At this time, Western Union has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending downward for the stock, and the magnitude of these revisions looks promising. Notably, Western Union has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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