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Western Union (WU) Down 9.5% Since Last Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for Western Union (WU - Free Report) . Shares have lost about 9.5% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Western Union due for a breakout? 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 catalysts.

Western Union Q2 Earnings Beat Estimates on Lower Costs

Western Union reported second-quarter 2022 earnings per share of 51 cents, which outpaced the Zacks Consensus Estimate by 24.4%. The bottom line rose 6.3% year over year.

WU’s earnings gained momentum from improved operating margin and reduced share count. The quarterly results were hurt by discontinuation of operations across Russia and Belarus, which adversely impacted WU’s digital money transfer revenues, and a higher effective tax rate.

Total revenues of $1,138 million slumped 12% year over year on a reported basis and 4% on a constant currency basis in the second quarter. The top line beat the Zacks Consensus Estimate by a whisker.

Adjusted operating margin expanded 310 basis points year over year to 23.3% on the back of changes in foreign currency, reduced compensation-related expenses and product mix.

Other Quarterly Results

Western Union’s total expenses decreased 16% year over year to $874.3 million, thanks to lower cost of services, and selling, general and administrative expenses.

The Consumer-to-Consumer (C2C) segment, that usually contributes the most to WU’s revenues, decreased 9% year over year on a reported basis and 6% on a constant currency basis in the quarter under review. Meanwhile, transactions slipped 13% year over year due to reduced transactions across Europe and CIS, North America and APAC.

Digital money transfer revenues fell 6% year over year on a reported basis and 3% on a constant currency basis. The metric accounted for 25% and 33% of overall C2C revenues and transactions, respectively.

Revenues of Westernunion.com dipped 1% year over year on a reported basis but inched up 1% on a constant currency basis. The revenue comprised 1% cross-border revenue growth.

Balance Sheet (as of Jun 30, 2022)

Western Union exited the second quarter with cash and cash equivalents of $1,201.9 million, which dipped 0.5% from the 2021-end level.

Borrowings declined 10.4% from the figure at the 2021-end to $2,695.3 million.

Total stockholders' equity of $448.3 million increased 26.1% from the level as of Dec 31, 2021.

During the six months ended Jun 30, 2022, net cash provided by operating activities fell 12.2% from the prior-year comparable period to $306.8 million.

Capital Deployment

Western Union rewarded $112 million to shareholders to the tune of $91 million through dividends of $91 million and share buybacks of $21 million during the second quarter.

2022 Guidance Revised

Western Union altered its 2022 guidance, considering several factors such as the timing of expenses, better-than-expected cost management on a year-to-date basis and weaker top-line trends.

Adjusted revenues (constant currency, excluding the impact of Argentina inflation and proforma for the planned sale of Business Solutions) are now expected to witness mid-single-digit decline, while the previous view estimated the metric to witness low-single-digit decline.

Adjusted EPS is still anticipated within $1.75 and $1.85 for 2022. The mid-point of the guidance indicates 34.5% decline from the 2021 reported figure.

Operating profit margin is expected between 20% and 21%, up from the prior forecast of roughly 20%. The metric stood at 22.5% in 2021.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month.

The consensus estimate has shifted -12.31% due to these changes.

VGM Scores

At this time, Western Union has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. Charting a somewhat similar path, 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 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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