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Western Union (WU) Q1 Earnings, Revenues Miss Estimates

The Western Union Company WU reported first-quarter 2016 operating earnings per share of 37 cents that missed the Zacks Consensus Estimate by 2.7%. Earnings also declined 5.1% year on year mainly due to lower operating income from Consumer-to-Consumer and Consumer-to Business segments.

Total revenue of Western Union came in at $1.3 billion, slightly below the Zacks Consensus Estimate. Revenues declined 2% year over year on reported basis due to adverse impact of the strong U.S. dollar. Nonetheless, revenues increased 3% on a constant currency basis.
The top-line growth was also limited by a 3% decline in transaction fees and a 3% decrease in other revenues, offset by a 2% rise in foreign exchange revenues.

Western Union’s total expenses dipped 1% year over year to $1billionowing to a decrease in selling, general and administrative expenses.

Operating margin came in at 19.9% in the quarter compared with 20.6% in the prior-year quarter due to impact of foreign exchange and higher investment in technology.

Segment Update

The Consumer-to-Consumer segment, which is the main contributor to thecompany’s top line, reported a 2% decline in revenues to $1 billion due to lower transaction fees and other revenues. Operating income declined 4% to $231 million.

In the Consumer-to-Business segment, revenues declined 1% year over year to $156 million due to lower foreign exchange and other revenues. Operating income plunged 23% year over year to $22.9 million.

Business Solutions revenues inched up 1% year over year to $99.2 million in the quarterdue to higher foreign exchange revenues, partially offset by lower transaction fees and other revenues. The segment reported operating income of $2.4 million in the quarter, up 15% year on year.

Financial Update

Cash and cash equivalents as of Mar 31, 2016 were $1.2 billion, down 11.8% from the 2015-end level.

Borrowing remained almost unchanged from the 2015-end level at $3.2 billion.

As of Mar 31, 2016, stockholders' equity was $1.2 billion, down11.88% from year-end 2015.

Western Union generated cash flow from operating activities of $212.7 million as of Mar 31, 2016 compared with $211.8 million in the prior-year quarter.

Share Repurchase and Dividend Update

In the reported quarter, the company spent $240 million for share buybacks and $79 million as dividends, thereby returning $319 million to its shareholders.

In the first quarter, the company announced a quarterly cash dividend of 16 cents per common share, up 3% from the prior-year payout.

2016 Guidance

Western Union mostly reiterated its full-year outlook. However, the company increased its GAAP revenue outlook by $50 million based on the positive movement of several foreign currencies against the U.S. dollar. The company expects low to mid-single digit increase in revenues on a constant currency basis. GAAP revenues change is expected around 300 basis points lower than constant currency.

Impact of increased revenues on operating profit from is expected to be partially offset by a reduction in hedge benefits. Hedge gains are now projected at $40 million instead of $50 million. The earnings per share projection, after including the negative impact of around 15 cents associated with modifications in foreign exchange rates and lesser hedge benefits, lies between $1.58 and $1.70.  

The company expects cash flow from operating activities of about $1 billion. This outlook excludes about $100 million final tax payments related to the agreement announced with the U.S. Internal Revenue Service in Dec 2011. Either a portion or the entire payment is likely to be made in 2016.

Zacks Rank and Performance of Other Financial Transaction Services Providers

Western Union currently carries a Zacks Rank # 2 (Buy). The bottom line at American Express Co. AXP, MoneyGram International MGI and Visa Inc V beat their respective Zacks Consensus Estimate for the quarter ending as of Mar 31, 2016.

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MONEYGRAM INTL (MGI): Free Stock Analysis Report
 
AMER EXPRESS CO (AXP): Free Stock Analysis Report
 
VISA INC-A (V): Free Stock Analysis Report
 
WESTERN UNION (WU): Free Stock Analysis Report
 
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