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The Western Union Company (WU - Analyst Report) reported third-quarter 2013 operating earnings of 39 cents per share, 4 cents ahead of the Zacks Consensus Estimate of 35 cents. However, earnings compared unfavorably with 45 cents per share reported in the prior-year quarter.
Total revenues came in at $1.41 billion, declining 1% year over year, largely driven by soft results at the Consumer-to-Consumer segment as transaction gains were offset by pricing reductions. Pro forma revenues were flat with the year-ago quarter at constant currency rate. Reported revenues marginally missed the Zacks Consensus Estimate.

Western Union’s total expenses stood at $1.11 billion, up 5% year over year on account of higher cost of service as well as selling, general and administrative expenses.

Segment Update

In the Consumer-to-Consumer segment, revenues decreased 2% year over year to $1.13 billion due to lower transaction fees, partly offset by higher foreign exchange revenues and other revenues. The segment reported a 20% decline in operating income to $271.1 million. The company expects transactions to increase in the mid-to-high single-digits for this segment in 2013.

In the Consumer-to-Business segment, revenues increased 3% year over year to $152.3 million, led by higher transaction fees. The segment reported a 21% decline in operating income to $29.3 million.
Business Solutions reported revenues of $101.6 million in the quarter, which increased 6% year over year, largely driven by higher foreign exchange revenues. The segment reported an operating loss of $2.8 million, comparing favorably with the year-ago loss of $7.5 million.

Electronic Channel revenues, which include, digital and account-based money transfer through banks, surged 24% in the quarter.

Western Union ended the quarter with 520,000 agent locations, up 5,000 year over year.  

Financial Update

Western Union’s cash flow from operations was $810.9 million in the first nine months of 2013, down 5.6% year over year.
With $69 million of share buyback and $20 million of dividend, Western Union returned $89 million to shareholders in the quarter.

2013 Guidance

Western Union raised the bottom end of its guidance by 5 cents. The guidance is thus revised to $1.38–$ 1.43 from $1.33–$1.43 guided earlier. It expects cash flow from operating activities of approximately $1 billion, raised from $900 million.

Additionally, Western Union expects to return nearly $700 million to shareholders in 2013 in the form of share repurchases and dividend.

Western Union expects constant currency revenues to decline by low single digits in 2013.

Western Union estimates its compliance-related expenses to increase to 4.5% of revenues in 2014 from approximately 2.5% of revenues in 2013.

Zacks Rank

Western Union currently carries a Zacks Rank #2 (Buy). MoneyGram International Inc.’s (MGI - Analyst Report) third-quarter earnings missed the Zacks Consensus Estimate, while Euronet Worldwide Inc.’s (EEFT - Snapshot Report) and American Express Company’s (AXP - Analyst Report) earnings surpassed the same.

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