It has been about a month since the last earnings report for Western Union (
WU Quick Quote WU - Free Report) . Shares have added about 3.6% in that time frame, outperforming the S&P 500.
Will the recent positive 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 the most recent earnings report in order to get a better handle on the important drivers.
Western Union Q4 Earnings & Revenues Beat Estimates
Western Union’s fourth-quarter 2020 earnings of 45 cents per share surpassed the Zacks Consensus Estimate by 7.14%. The bottom line also inched up 18.4% year over year. Earnings improved year over year due to a lower effective tax rate, productivity and cost savings, and lower share count, partly offset by revenue weakness.
Behind the Headlines
Total revenues of $1.27 billion beat the Zacks Consensus Estimate by 0.74%. However, the top line dipped 2.8% year over year. Revenues were weighed down by the continuing macroeconomic impact from COVID-19, partially offset by the strength in digital money transfer, which grew 36% to a new quarterly high of $240 million.
Total expenses of $1.04 million fell 3% year over year owing to reduced selling, general and administrative expenses.
Adjusted operating margin was 18.8%, up 10 basis points year over year. Margin expansion was primarily driven by productivity savings and additional cost savings related to the effect of the COVID-19 pandemic, partially offset by weak revenues. EBITDA margin of 22.3% was down 10 basis points year over year.
Consumer to Consumer (C2C)
Revenues of $1.12 billion were flat year over year on constant currency (CC) as well as on a reported basis. Total transactions increased 6%. Digital money transfer revenues were up 35% year over year. Within the digital money transfer business, westernunion.com revenues jumped 27% reportedly and 26% at cc. Operating income of $229.6 million inched up 1% year over year. Operating margin expanded 20 basis points year over year to 20.5%.
Revenues of $86.8 million deteriorated 8% on a reported basis or 11% on constant currency basis, primarily due to the ongoing macroeconomic issues stemming from the COVID-19 impact on small and medium-sized enterprises, travel and tourism, and education. The segment reported an operating loss of $0.2 million against an operating income of $11 million in the year-ago quarter. Operating margin was a negative 0.2% in fourth-quarter 2020 against 11.3% in the fourth quarter of 2019.
Balance Sheet (as of Dec 31, 2020)
Cash and cash equivalents were $1.43 billion, down 1.5% from the level at 2019 end. Borrowings dipped 5.9% to $3.06 billion from the level at 2019 end. Stockholders' equity of $186 million as of 2020 end came against the deficit of $39.5 million at 2019 end.
Decrease in Cash Flow From Operations
Cash flow from operating activities was $877.5 million in 2020, down 4% year over year.
Resumption of Share Buyback
The company resumed share repurchases in the first quarter of 2021 and made a 4% increase in the quarterly dividend.
The company expects its current-year digital revenues to reach approximately $1 billion in 2021. It anticipates the business to continue improving in 2021 and thus expects mid-single digit constant currency revenue growth and EPS in the range of $2-$2.10.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended downward during the past month.
At this time, Western Union has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
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.