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MoneyGram International Inc. (MGI - Analyst Report) reported fourth-quarter 2012 earnings per share of 27 cents, a penny higher than the Zacks Consensus Estimate. However, the reported earnings soared from the year-ago quarter’s earnings of 4 cents a share.
Operating net income in the reported quarter excluded negative impacts of certain accruals and legal expenses of 3 cents per share, restructuring and reorganization costs of 4 cents per share and stock-based compensation of 1 cent a share. These were partially offset by gains on the sales of previously written down securities of 9 cents a share.
Including these adjustments, reported net income surged to $20.2 million or 28 cents per share against $3.1 million or 4 cents per share in the year-ago quarter.
Higher money transfer transaction volumes and higher fee and other revenue drove the top line, while lower interest expenses helped the bottom line and free cash flow. However, lower investment income along with higher operating and commission expenses deteriorated the margins.
Total operating expenses climbed 9.8% year over year to $313.7 million, whereas total commission expense increased 11.5% year over year to $158.3 million. Subsequently, operating income increased to $40.7 million from $36.2 million in the year-ago quarter. However, interest expense decreased by 13.2% from the prior year to $17.7 million.
MoneyGram’s total revenue for the quarter was $354.4 million, up 10.1% from the year-ago period. However, it lagged the Zacks Consensus Estimate of $346 million. While fee and other revenue increased 10.2% year over year to $351.3 million, investment revenue stood at $3.1 million, at par with the year-ago period.
In the Global Funds Transfer segment, MoneyGram’s revenue grew 10.9% year over year to $332.9 million. Money transfer transaction volume increased 14%, while money transfer fee and other revenue grew 12.3% year over year to $306.9 million and 13% on a constant currency basis, showcasing double-digit growth for the 7th consecutive quarter.
Further, global agent locations increased 16% over the prior-year quarter to 310,000, primarily driven by growth in Russia, Africa and Portugal, among others. Bill payment transaction volume improved 1% year over year, whereas, fee and other revenue declined 3% to $26.0 million from the prior-year quarter.
However, excluding the effect of divestiture in the fourth quarter of 2011, bill payment transaction volumes improved by 3% year over year, while fee and other revenue decreased 2%. As a result, operating margin improved to 11.5% from 11.1% in the year-ago quarter, while adjusted operating margin dipped to 13.6% from 14.0% in the year-ago quarter.
Total money transfer transactions originating outside the U.S. escalated 18% from the prior-year quarter. Transaction volume to Mexico increased 24% year over year, significantly improving for the 12th consecutive quarter. Additionally, MoneyGram’s transactions originating in the U.S. increased 9% year over year, while U.S. outbound transaction growth increased 15% over the prior-year period.
In the Financial Paper Products segment, MoneyGram’s total revenue edged down 1.4% year over year to $21.0 million, reflecting reduced fee and other revenue. Conversely, operating margin improved to 38.6% from 27.7% in the year-ago quarter, as commission expenses remained flat. Additionally, adjusted operating margin escalated to 40.5% from 33.3% in the year-ago quarter.
Highlights of Full-Year 2012
For full-year 2012, MoneyGram reported operating earnings of $1.05 per share against a loss of $1.51 per share in 2011, also beating the Zacks Consensus Estimate of 99 cents a share. Operating earnings in 2012 excluded negative impacts of certain accruals and legal expenses of $1.58 per share, restructuring and reorganization costs of 17 cents per share and stock-based compensation of 8 cents a share. These were partially offset by gains on the sales of previously written down securities of 9 cents a share.
Including these adjustments, reported net loss surged to $49.3 million or 69 cents per share as against income of $59.4 million or $1.22 per share in 2011, which was based on low share count. Total operating expenses jumped 16.6% year over year to $1.10 billion, whereas total commission expense escalated 9.4% year over year to $599.5 million.
Total revenue increased 7.5% to $1.34 billion in 2012, and was almost in line with the Zacks Consensus Estimate. MoneyGram has been gaining traction with the raised momentum in self-service and new channel revenue that jumped 50% in 2012 and represented 5% of money transfer revenue.
As of Dec 31, 2012, MoneyGram had cash and cash equivalents of $2.68 billion (up from $2.57 billion at 2011-end), net receivables of $1.21 billion (down from $1.22 billion) and available-for-sale investments of $63.5 million (down from $102.8 million).
The company exited 2012 with $809.9 million of outstanding debt (marginally down from $810.9 million at 2011-end), and assets in excess of payment service obligations of $227.9 million (up from $211.7 million).
Free cash flow increased 16% to $23.4 million from $36.4 million in the year-ago quarter, while it grew 9% over 2011 to $115.0 million in 2012. The upside was primarily driven by strong money transfer results and lower interest payments, partially offset by higher capital expenditures and signing bonuses.
Management provided 2013 guidance and expects total revenue to grow 6%–9%, on constant currency basis, while adjusted EBITDA growth is forecasted in the band of 3%–6%. Meanwhile, MoneyGram aims to continue achieving double-digit growth in money transfer transactions and increasing free cash flow.
MoneyGram carries a Zacks Rank #3 (Hold). Other strong performers in the financial sector include Moody’s Corp. (MCO - Analyst Report),Selective Insurance Group Inc. (SIGI - Snapshot Report) and HCC Insurance Holdings Inc. (HCC - Snapshot Report), all of which carry a Zacks Rank #1 (Strong Buy).