Western Union (WU) Q2 Earnings Beat on High C2C Transactions
The Western Union Company WU 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, inflation in Argentina 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.
The Western Union Company Price, Consensus and EPS Surprise
The Western Union Company price-consensus-eps-surprise-chart | The Western Union Company Quote
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 declined marginally 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, indicating 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.
Zacks Rank & Key Picks
Western Union currently has a Zacks Rank #3 (Hold).
Some better-ranked stocks in the broader Business Services space are Paychex, Inc. PAYX, S&P Global Inc. SPGI and Marqeta, Inc. MQ, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Paychex’s current year bottom line suggests 9.6% year-over-year growth. Headquartered in Rochester, NY, PAYX beat earnings estimates in three of the past four quarters and missed once, with an average surprise of 3.4%.
The Zacks Consensus Estimate for S&P Global’s current year earnings indicates a 12.3% year-over-year increase. New York-based SPGI beat earnings estimates in three of the past four quarters and missed once, with an average surprise of 3.1%.
The Zacks Consensus Estimate for Marqeta’s current year top line suggests 21.8% year-over-year growth. Based in Oakland, MQ beat earnings estimates in two of the past four quarters, met once and missed on another occasion, with an average surprise of 11.8%.
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