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It has been about a month since the last earnings report for Western Union (WU - Free Report) . Shares were flat in that time frame, underperforming the S&P 500.
Will the recent 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 its most recent earnings report in order to get a better handle on the important catalysts.
Western Union Q1 Earnings Miss Estimates, Revenues Up Y/Y
Western Union’s first-quarter 2021 earnings per share of 44 cents, missed the Zacks Consensus Estimate by 2.2%. Notably, the bottom line remained flat year over year.
The company’s results benefited from improving revenues, a lower effective tax rate and share buybacks but were partly offset by increased operating costs and higher investments in strategic initiatives as well as marketing and compensation-related expenses. Behind the Headlines
Total revenues of $1.2 billion improved 2% year over year both on a reported as well as constant currency (cc) basis in the quarter. The growth can be attributed to robust digital money transfer revenues, which surged 45% year over year to a new quarterly high of $242 million. Further, the top line outpaced the Zacks Consensus Estimate by 0.7%.
Total operating expenses increased 2% year over year to $977.2 million in the quarter under review due to higher cost of services.
Adjusted operating margin came in at 19.2%, down 130 basis points (bps) year over year. Margin contraction primarily stemmed from growing investments in strategic initiatives and marketing and compensation-related expenses, partially offset by foreign exchange changes. EBITDA margin of 23.7% contracted 80 bps year over year in the first quarter.
Segmental Update
Consumer-to-Consumer (C2C)
Revenues of $1.1 billion rose 4% year over year on a reported basis or 2% on cc basis. Total transactions in the segment climbed 9% year over year attributable to Europe and CIS, U.S. outbound, and the Middle East, partly negated by drop in U.S. domestic money transfer, Latin America and the Caribbean.
Digital money transfer revenues soared 45% year over year on a reported basis or 44% on cc basis. Within the digital money transfer business, westernunion.com revenues advanced 38% year over year on a reported basis or 37% on cc basis.
Operating income dipped 2% year over year in the quarter to of $206.1 million in the quarter under review.
Operating margin contracted 110 bps year over year to 19.6%.
Business Solutions
Revenues of $96.5 million fell 2% year over year on a reported basis or 8% on cc basis primarily due to reduced hedging activity and adverse impact of the COVID-19 pandemic on specific segment verticals.
The segment reported an operating income of $12.6 million in the quarter under consideration, which declined 9% year over year.
Operating margin came in at 13.1%, which contracted 100 bps year over year.
Balance Sheet (as of Mar 31, 2021)
The company exited the first quarter with cash and cash equivalents of $1.5 billion, which improved 5.2% from the 2020-end level. Borrowings increased 5.3% from the level at 2020 end to $3.2 billion in the quarter.
Stockholders' equity of $218.8 million grew 17.3% from the 2020-end level.
Increase in Cash Flow From Operations
During the first quarter, net cash provided by operating activities amounted to $175.8 million, up 56.4% year over year.
Prudent Capital Deployment
The company rewarded shareholders to the tune of $97 million and $75 million via dividends and share buybacks, respectively, in the first quarter.
2021 Guidance Reiterated
The guidance for this year’s adjusted earnings per share, revenues and operating profit margin remain unchanged from the prior outlook. The company remains on track to cross the $1 billion mark in digital revenues during 2021.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -5.1% due to these changes.
VGM Scores
Currently, Western Union has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. However, 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. 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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How Has WU Performed 30 Days Post Earnings
It has been about a month since the last earnings report for Western Union (WU - Free Report) . Shares were flat in that time frame, underperforming the S&P 500.
Will the recent 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 its most recent earnings report in order to get a better handle on the important catalysts.
Western Union Q1 Earnings Miss Estimates, Revenues Up Y/Y
Western Union’s first-quarter 2021 earnings per share of 44 cents, missed the Zacks Consensus Estimate by 2.2%. Notably, the bottom line remained flat year over year.
The company’s results benefited from improving revenues, a lower effective tax rate and share buybacks but were partly offset by increased operating costs and higher investments in strategic initiatives as well as marketing and compensation-related expenses.
Behind the Headlines
Total revenues of $1.2 billion improved 2% year over year both on a reported as well as constant currency (cc) basis in the quarter. The growth can be attributed to robust digital money transfer revenues, which surged 45% year over year to a new quarterly high of $242 million. Further, the top line outpaced the Zacks Consensus Estimate by 0.7%.
Total operating expenses increased 2% year over year to $977.2 million in the quarter under review due to higher cost of services.
Adjusted operating margin came in at 19.2%, down 130 basis points (bps) year over year. Margin contraction primarily stemmed from growing investments in strategic initiatives and marketing and compensation-related expenses, partially offset by foreign exchange changes.
EBITDA margin of 23.7% contracted 80 bps year over year in the first quarter.
Segmental Update
Consumer-to-Consumer (C2C)
Revenues of $1.1 billion rose 4% year over year on a reported basis or 2% on cc basis. Total transactions in the segment climbed 9% year over year attributable to Europe and CIS, U.S. outbound, and the Middle East, partly negated by drop in U.S. domestic money transfer, Latin America and the Caribbean.
Digital money transfer revenues soared 45% year over year on a reported basis or 44% on cc basis. Within the digital money transfer business, westernunion.com revenues advanced 38% year over year on a reported basis or 37% on cc basis.
Operating income dipped 2% year over year in the quarter to of $206.1 million in the quarter under review.
Operating margin contracted 110 bps year over year to 19.6%.
Business Solutions
Revenues of $96.5 million fell 2% year over year on a reported basis or 8% on cc basis primarily due to reduced hedging activity and adverse impact of the COVID-19 pandemic on specific segment verticals.
The segment reported an operating income of $12.6 million in the quarter under consideration, which declined 9% year over year.
Operating margin came in at 13.1%, which contracted 100 bps year over year.
Balance Sheet (as of Mar 31, 2021)
The company exited the first quarter with cash and cash equivalents of $1.5 billion, which improved 5.2% from the 2020-end level.
Borrowings increased 5.3% from the level at 2020 end to $3.2 billion in the quarter.
Stockholders' equity of $218.8 million grew 17.3% from the 2020-end level.
Increase in Cash Flow From Operations
During the first quarter, net cash provided by operating activities amounted to $175.8 million, up 56.4% year over year.
Prudent Capital Deployment
The company rewarded shareholders to the tune of $97 million and $75 million via dividends and share buybacks, respectively, in the first quarter.
2021 Guidance Reiterated
The guidance for this year’s adjusted earnings per share, revenues and operating profit margin remain unchanged from the prior outlook. The company remains on track to cross the $1 billion mark in digital revenues during 2021.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -5.1% due to these changes.
VGM Scores
Currently, Western Union has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. However, 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Western Union has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.