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Western Union (WU) Down 3.5% Since Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for Western Union Company (The) (WU - Free Report) . Shares have lost about 3.5% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? 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 drivers.

Western Union Beats on Q4 Earnings

Western Union reported fourth-quarter 2017 adjusted earnings per share (EPS) of $0.47, beating the Zacks Consensus Estimate of $0.43. Also, the bottom line improved nearly 12% year over year.

Adjusted net income came in at $229.9 million in the reported quarter, up from $212.3 million recorded in the prior-year quarter.

Including impact of $1.18 owing to charge related to settlements with U.S. regulators to resolve investigations tied with the company’s oversight of certain agents and anti-fraud program as well as anti-money laundering controls, and an impact of $0.02 from expenses tied to company’s spending on a new business transformation program (WU Way), Western Union reported loss of $355 million or $0.73 per share in the reported quarter.

For full-year 2016, adjusted EPS of $1.75 outpaced the Zacks Consensus Estimate of $1.66. Also, it improved from the year-ago figure of $1.67. Adjusted net income for 2016 was $861.7 million, compared with $862.0 million in 2015.

Behind the Headlines

For 2016, Western Union’s total revenues came in at $5.42 billion, in line with the Zacks Consensus Estimate. However, it edged down 1% on a year-over-year basis. Revenues (constant currency adjusted) were $5.64 billion in the year.

Total revenue of $1.37 billion in fourth-quarter 2016, came in line with the Zacks Consensus Estimate. However, revenues dipped 1% year over year. The decline was mainly due to lower transaction fees, partially offset by higher foreign exchange revenues as well as other revenues. Revenues (constant currency adjusted) were $1.43 billion in the reported quarter, down 1.6% year over year.

Western Union’s total expenses increased 53% year over year to $1.69 billion in the reported quarter. The quarter included $571 million charge tied with settlement with regulators.

Adjusted operating margin was 19.7% in the reported quarter, down from 20.4% in the prior-year quarter. The decline was mainly due to the negative impact of foreign exchange and incremental technology investment.

Segment Details

Revenues at Consumer-to-Consumer (C2C), which is the main contributor to the company’s top line, remained largely flat year over year at $1.1 billion in the reported quarter. On constant currency basis, revenues grew 3%. The quarter witnessed higher transactions led by increases in the U.S. originated business. Westernunion.com C2C revenues also increased.

In Consumer-to-Business, revenues declined 4% year over year to $155.2 million due to depreciation of the Argentine peso. On a constant currency basis, revenues climbed 9% driven by the Argentina walkin and U.S. electronic bill payments businesses.

Also, Business Solutions’ revenues were down 3% year over year to $98.8 million. On a constant currency basis, revenues inched up 1%.

Financial Update

Cash and cash equivalents as of Dec 31, 2016 were $877.5 million, down 33.3% from the 2015-end level.

As of Dec 31, 2016, stockholders' equity was $902.2 million, down 35.8% from year-end 2015.

2017 Guidance

Western Union expects the overall macro environment in 2017 to be largely in line with 2016, with persistent headwinds, including strengthening of the U.S. dollar and softness in oil producing markets.

Management stated that the WU Way program is designed to transform the company’s operating model in order to improve customer experience and drive cost efficiencies. These initiatives center on areas including technology transformation and network productivity. The company anticipates further spending of about $100 million in 2017.

The company expects GAAP revenues to be flat to low-single digit decline. On a constant currency, revenues are likely to exhibit low-single digit growth.

GAAP operating margin is estimated at about 18% while adjusted operating margin is projected at 20%. Western Union expects the efficiency initiatives included in the WU Way program to generate savings of about $20 million in 2017 and an additional $25 million in 2018. The margin guidance considers a negative foreign exchange impact of about 50bps, and compliance expense in the higher end of the range of 3.5–4.0% of revenue.

Further, Western Union expects GAAP EPS in a range of $1.48–$1.60. Adjusted EPS, which excludes the impact of the WU Way related expenses, is estimated in the range of $1.63–$1.75.

The EPS guidance considers around $0.09 negative impact from foreign exchange, and assumes a GAAP effective tax rate of about 11% and an adjusted effective tax rate of around 13%.

How Have Estimates Been Moving Since Then?

Analysts were quiet during the last one month period as none of them issued any earnings estimate revisions.

VGM Scores

At this time, Western Union Company's stock has an average score of 'C' on both growth and momentum front. Following a similar course, the stock was allocated also a grade of 'B' on the value side, putting it in the second 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.

Based on our scores, the stock is more suitable for value investors than growth and momentum investors.

Outlook

The stock has a Zacks Rank #3 (Hold). We are expecting inline return from the stock in the next few months.


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