Western Union (WU) Posts In-Line Q3 Earnings, Tweaks View

The Western Union Company (NYSE:WU) reported third-quarter 2016 operating earnings per share of 44 cents, which came in line with the Zacks Consensus Estimate. In the year-ago quarter, the company had reported earnings of 45 cents per share.

Behind The Headlines

Total revenue of $1.38 billion increased 2% year over year on a constant currency basis but decreased 2% on reported basis. It missed the Zacks Consensus Estimate of $1.40 billion.

The top line was impacted by a 3% decline in transaction fees and a 2% increase in foreign exchange revenues.

Western Union’s total expense remained unchanged year over year at $1.1 billion.

Operating margin was 20.2% in the quarter compared with 21.8% in the prior-year quarter. This was negatively impacted by $15 million Federal Trade Comission accrual (110 basis points), foreign exchange, customer and funding mix in Consumer-to-Business, and incremental technology expense, partially offset by lower compensation, and depreciation and amortization expense.

Segment Update

Consumer-to-Consumer, which is the main contributor to the company’s top line, reported a 1% decline in revenues to $1.1 billion due to lower transaction fees. Operating margin declined 210 basis points year over year to 23.4%, negatively impacted by $15 million FTC accrual, and foreign exchange and incremental technology expense, partially offset by lower compensation-related expenses.

In Consumer-to-Business, revenues declined 3% year over year to $155.7 million due to lower transaction fees. Operating income was $14.2 million, down 45.8% year over year. Operating margin declined 730 basis points due to the negative impact of customer and funding mix in the U.S. electronic business.

Business Solutions revenues decreased 10% year over year to $100.7 million. The segment reported operating income of $3.4 million, rebounding from the year-ago loss of $2.7 million.

Financial Update

Cash and cash equivalents as of Sep 30, 2016 were $1.28 billion, down 2.7% from the 2015-end level.

As of Sep 30, 2016, stockholders' equity was $1.39 billion, down 1.2% from year-end 2015.

Share Repurchase and Dividend Update

In the reported quarter, the company spent $84 million on share buybacks and $78 million as dividends.

2016 Guidance

For the full year, the company narrowed its revenue outlook and affirmed its EPS outlook at $1.60 to $1.70. Revenue is expected to increase approximately 1%, or 3% at constant currency. Previously, the company projected a low-to-mid single-digit constant currency increase, with GAAP revenue growth being approximately 400 basis points lower). Its guidance for cash flow from operating activities of about $1 billion remains unchanged.

Zacks Rank

Western Union currently carries a Zacks Rank #4 (Sell).

WESTERN UNION Price, Consensus and EPS Surprise

WESTERN UNION Price, Consensus and EPS Surprise | WESTERN UNION Quote

Performance of Other Stocks

Among other financial transaction services providers, the bottom line at American Express Co. (NYSE:AXP) , MoneyGram International (NASDAQ:MGI) and MasterCard Incorporated (NYSE:MA) beat the respective Zacks Consensus Estimate for the third quarter.

Each of these companies also carries a better Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.