Western Union (WU) Down 3.4% Since Last Earnings Report: Can It Rebound?
A month has gone by since the last earnings report for Western Union (WU). Shares have lost about 3.4% in that time frame, outperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Western Union due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Western Union Q2 Earnings Beat on High C2C Transactions
Western Union reported second-quarter 2023 adjusted earnings per share (EPS) of 51 cents, beating the Zacks Consensus Estimate by 34.2%. The bottom line remained flat year over year.
Total revenues rose 3% year over year on a reported basis or 6% on a constant-currency basis to $1,170 million. Also, the top line beat the Zacks Consensus Estimate by 11.8%.
The quarterly results were supported by growth in business originating from Iraq, Argentinian inflation and better-than-expected C2C transactions. Evolve 2025’s momentum and strength in the Middle East business further benefited the results, partially offset by higher expenses.
Q2 Performance
Adjusted operating margin of 21.8% deteriorated 150 basis points year over year due to increased incentive compensation, variable costs, currency impacts and investments in Evolve 2025 strategy. However, the adjusted operating margin beat our estimate of 18.4% as the negatives were partially offset by reduced marketing spend and savings from the redeployment program of operating expenses.
Second-quarter adjusted effective tax rate of 16% was lower than 16.9% in the year-ago period.
Western Union’s total expenses came in at $927.4 million, up 6% year over year and 8.9% higher than our estimate. Higher cost of services and SG&A expenses contributed to this increase in the second quarter.
C2C Segment
The C2C segment reported revenues of $1,072.2 million, which increased 4% year over year and beat our estimate of $950.4 million in the quarter under review, on the back of higher transactions. Operating income climbed 2% year over year to $230.7 million, beating our estimate of $158.4 million. Changes in Iraqi monetary policies also provided an impetus. The operating income margin of 21.5% fell from 22% a year ago.
Transactions within the C2C segment rose 4% year over year to 70.6 million, marking the highest growth since 2021 and beating our estimate of 63.5 million, on the back of its branded digital go-to-market program strength. Furthermore, higher transactions across the Middle East, Africa and South Asia, Latin American and Caribbean region and North America boosted the metric in the second quarter, partially offset by lower Europe and the Commonwealth of Independent States transactions.
Branded Digital revenues decreased 2% on a reported basis and constant-currency basis. Its transactions, however, increased 12% year over year.
Business Solutions
The Business Solutions segment reported revenues of $14.3 million, which plunged 60% year over year. Operating income of $1.8 million fell 79% year over year. The operating income margin was 12.1% in the second quarter, down from 23.5% a year ago.
The company completed the divestment (third closing) of the Business Solutions unit on Jul 1, 2023. In this final stage, the European Union operations of the unit were included.
Balance Sheet (as of Jun 30, 2023)
Western Union exited the second quarter with cash and cash equivalents of $1,585.9 million, which increased from the 2022-end level of $1,285.9 million. Total assets of $8,487.4 million marginally declined from the $8,496.3 million figure at 2022-end.
Borrowings increased from $2,616.8 million at 2022-end to $2,813 million. Total debt outstanding at the second-quarter end was $2.81 billion.
Total stockholders' equity of $626.5 million increased from $477.8 million as of Dec 31, 2022.
In the first half of 2023, net cash provided by operating activities decreased from $306.8 million a year ago to $264 million.
Dividend Update
Western Union rewarded its shareholders with $88 million in dividends in the second quarter.
2023 Guidance
The company raised its guidance for 2023 thanks to better performance in Iraq. However, the upside is not expected to last going forward due to the recent actions of the U.S. government, barring 14 Iraqi banks from dollar transactions.
Western Union now expects adjusted revenues to be within a decline of 1% and an increase of 1% in 2023 compared with the 2022 level of $4,444.6 million.
Adjusted EPS is anticipated within $1.65-$1.75 for 2023. The midpoint of the guidance indicates a decline from the 2022 reported figure of $1.76 per share. Adjusted operating margin is expected between 19% and 21%. The metric stood at 20.4% in 2022.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates flatlined during the past month.
VGM Scores
Currently, Western Union has a poor Growth Score of F, however its Momentum Score is doing a lot better with a C. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Western Union has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Western Union belongs to the Zacks Financial Transaction Services industry. Another stock from the same industry, Visa (V), has gained 2.2% over the past month. More than a month has passed since the company reported results for the quarter ended June 2023.
Visa reported revenues of $8.12 billion in the last reported quarter, representing a year-over-year change of +11.7%. EPS of $2.16 for the same period compares with $1.98 a year ago.
Visa is expected to post earnings of $2.23 per share for the current quarter, representing a year-over-year change of +15.5%. Over the last 30 days, the Zacks Consensus Estimate has changed +0.7%.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Visa. Also, the stock has a VGM Score of D.
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