It has been about a month since the last earnings report for Western Union (WU). Shares have added about 4.8% in that time frame, underperforming 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 catalysts.
Western Union Q2 Earnings Beat Estimates, Fall Y/Y
The Western Union’s earnings of 41 cents per share surpassed the Zacks Consensus Estimate by 13.89%. However, the bottom line was down 8.9% year over year.
The year-over-year earnings decline was due to revenue declines associated with the COVID-19 pandemic and lost earnings from the 2019 divestitures, partially offset by productivity savings, additional cost-management measures and lower share count in the current year period.
Behind the Headlines
Total revenues of $1.11 billion beat the Zacks Consensus Estimate by 2.21% but the top line declined 17.2% year over year due to lower transaction levels resulting from the COVID-19 pandemic.
Digital money transfer revenues grew 48% year over year or 50% on constant currency basis to $219 million in the second quarter.
Total expenses of $892.9 million fell 17% year over year owing to reduced cost of services and selling, general and administrative expenses.
Consumer to Consumer (C2C)
Revenues of $976.6 million dropped 12% year over year on a reported basis and 11% in constant currency. Total transactions decreased 8%. Covid-19-led disruption deflated revenues across all regions, except in Europe and CIS. The pandemic took a toll on global economy and remittances.
Digital revenues and transactions represented 22% and 31% of the C2C business in the quarter, respectively. Within the digital money transfer business, westernunion.com revenues surged 33% reportedly and 34% at cc including cross-border revenue growth of 48%.
Operating income of $212.8 million decreased 15% year over year.
Operating margin contracted 70 basis points year over year to 21.8%.
Revenues of $79.4 million deteriorated 17% on a reported basis or 15% on constant currency basis due to softening trends in verticals more exposed to COVID-19 including education, travel and tourism, and small and medium-sized enterprises.
The segment reported operating income of $1.3 million, down 88% year over year. Operating margin shrank 930 basis points year over year to 1.6%.
Balance Sheet (as of Jun 30, 2020)
Cash and cash equivalents were $1.18 billion, down 18.5% from the level at 2019 end.
Borrowings dipped nearly 4.9% to $3.08 billion from the level at 2019 end.
Stockholders' equity was a deficit of $73.4 million, which widened from the deficit of $39.5 million at the end of 2019.
For the first six months of 2020, the company generated net cash worth $347.8 million from operations, down 13.6% year over year.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended upward during the past month. The consensus estimate has shifted 7.21% due to these changes.
Currently, Western Union has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending upward 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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