MoneyGram International Inc. (MGI - Analyst Report) reported second-quarter 2013 earnings per share of 32 cents, which beat the Zacks Consensus Estimate of 30 cents and improved from the year-ago quarter’s earnings of 23 cents.
Operating earnings per share in the reported quarter excluded negative impacts of severance costs of 1 cent, legal expense of 1 cent and stock-based compensation of 3 cents.
Including these adjustments, reported net income rebounded to $19.1 million or 27 cents per share against net loss of $25.1 million or 35 cents per share in the year-ago quarter.
Higher money transfer transaction volumes, higher fee and other revenues along with improved investment income drove the top line, whereas lower operating and interest expenses supported the bottom line and free cash flow. However, weak performance in financial products segment along with higher operating and commission expenses restricted the upside in margins.
Total operating expenses dipped 1.3% year over year to $322.6 million, while total commission expense increased 15.6% to $169.7 million. Subsequently, operating income escalated to $42.5 million from a mere $3.1 million in the year-ago quarter. Meanwhile, interest expense plunged 44.1% from the prior year to $9.9 million, reflecting the efficiency from the recent debt refinancing.
MoneyGram’s total revenue for the quarter was $365.1 million, reflecting double-digit year-over-year growth of 10.6% for the first time in over 2 years. It also outperformed the Zacks Consensus Estimate of $357 million. Fee and other revenues increased 10.7% year over year to $361.6 million, whereas investment revenues improved 2.9% to $3.5 million.
In the Global Funds Transfer segment, MoneyGram’s revenues grew 11.7% year over year to $344.5 million. Money transfer transaction volume increased 14%, while money transfer revenue surged 13% on both year over year and a constant currency basis to $319.7 million, showcasing double-digit growth for the 9th consecutive quarter.
Self-service and new channel money transfer revenues surged 24%, representing 6% of money transfer revenues. Moreover, MoneyGram Online money transfer and bill payment transaction volume jumped 51%, while revenues grew 15% over the prior-year quarter.
Further, global agent locations increased 15% over the prior-year quarter to 324,000. Bill payment transaction volume dipped 2% year over year, whereas, fee and other revenues declined 5% to $24.8 million. As a result, operating margin dipped to 11.8% from 12.5% in the year-ago quarter owing to higher commission and compliance expenses. Even adjusted operating margin deteriorated to 12.5% from 14.3% in the year-ago quarter.
Total money transfer transactions originating outside the U.S. escalated 16% from the prior-year quarter. Transaction volume to Mexico increased 31% year over year, which was also the 14th consecutive quarterly increase. Additionally, MoneyGram’s transactions originating in the U.S. increased 8% year over year, while U.S. outbound transaction increased 19% over the prior-year period.
In the Financial Paper Products segment, MoneyGram’s total revenue fell 5.6% year over year to $20.3 million, reflecting lower fee and other revenues. Subsequently, operating margin dipped to 37.4% from 37.7% in the year-ago quarter, despite the commission expenses plummeting 60% to $0.2 million. Additionally, adjusted operating margin reduced to 38.9% from 40.0% in the year-ago quarter.
As of Jun 30, 2013, MoneyGram had cash and cash equivalents of $2.2 billion (down from $2.68 billion at 2012-end), net receivables of $1.18 billion (down from $1.21 billion) and available-for-sale investments of $50.5 million (down from $63.5 million).
The company exited the reported quarter with $847.1 million of outstanding debt (up from $809.9 million at 2012-end), while assets in excess of payment service obligations were $257.3 million (up from $227.9 million).
Free cash flow increased 24% year over year to $48 million. The upside was primarily driven by strong money transfer results that led to higher revenues as well as lower interest payments.
Management revised the 2013 guidance upward and now expects total revenue to grow 7–10% on a constant currency basis, from prior estimate of 6–9% increase. Meanwhile, adjusted EBITDA growth was reaffirmed in the band of 3–6%. MoneyGram aims to continue achieving double-digit growth in money transfer transactions and increase free cash flow as well.
While MoneyGram carries a Zacks Rank #3 (Hold), other performers in the financial sector include CME Group Inc. (CME - Analyst Report) , Heartland Payment Services Inc. and MarketAxess Holdings Inc. (MKTX - Analyst Report) . All these stocks carry a Zacks Rank #1 (Strong Buy).