It has been about a month since the last earnings report for Western Union (
WU Quick Quote WU - Free Report) . Shares have added about 12.4% 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 its most recent earnings report in order to get a better handle on the important catalysts.
Western Union's Q3 Earnings Meet Estimates
Western Union reported third-quarter 2022 adjusted earnings per share (EPS) of 42 cents, matching the Zacks Consensus Estimate. The bottom line plunged 33.3% year over year due to lower operating profit.
Total revenues fell 15% year over year on a reported basis or 6% on a constant currency basis to $1,089.6 million. Also, the top line missed the Zacks Consensus Estimate by a whisker.
The quarterly results were hurt by lower revenues and transactions in the Consumer-to-Consumer (C2C) segment, which usually contributes a massive chunk to WU’s overall revenues.
The segment was affected by discontinuation of operations across Russia and Belarus. Nevertheless, the downside was partly offset by a lower expense level and double-digit growth in U.S. outbound new digital customer acquisition. Adjusted operating margin of 20.6% deteriorated 460 basis points year over year due to lower revenues, and technology and market-linked investments. Western Union’s total expenses came in at $857.8 million, down 11% year over year. Lower cost of services, and selling, general and administrative expenses contributed to this decline in overall expenses in the third quarter. C2C Segment
The C2C segment reported revenues of $982.4 million, which tumbled 11% year over year on a reported basis or 8% on a constant currency basis in the quarter under review. The segment’s revenue, however, fell short of the Zacks Consensus Estimate of $1,001 million.
Transactions within the C2C segment fell 12% year over year due to lower transactions across Europe and CIS, North America, East Asia and Oceania (APAC) and the Middle East, Africa and South Asia (MEASA).
Digital money transfer revenues dropped 12% year over year on a reported basis or 9% on a constant currency basis in the third quarter. Digital money transfer transactions fell 20% year over year.
Branded Digital revenues decreased 8% on a reported basis or 5% on a constant currency basis. Balance Sheet (as of Sep 30, 2022)
Western Union exited the third quarter with cash and cash equivalents of $1,176.1 million, slipping 2.7% from the 2021-end level. Total assets of $8,901.3 million inched up 0.9% from the figure at 2021 end.
Borrowings dropped 13.2% from the figure at the 2021 end to $2,611 million. Total stockholders' equity of $528.3 million surged 48.6% from the level as of Dec 31, 2021. During the first nine months ended Sep 30, 2022, net cash provided by operating activities decreased 23.8% from the prior-year comparable period’s level to $522.4 million. Capital Deployment
Western Union rewarded its shareholders with $97 million through $91 million of dividends and share buybacks worth $6 million during the third quarter.
Western Union reiterated its full-year outlook.
Adjusted revenues (constant currency, excluding the impact of Argentina inflation and proforma for the planned sale of Business Solutions) are still expected to witness a mid-single-digit decline. Adjusted EPS is still anticipated within $1.75-$1.85 for 2022. The midpoint of the guidance indicates a 17.8% decline from the 2021 reported figure. Operating profit margin is expected between 20% and 21%. The metric stood at 22.5% in 2021. Update on Business Solutions Sell-Off
Last year, Western Union had inked a deal with Goldfinch Partners LLC and The Baupost Group LLC to divest its Business Solutions unit in two stages. The first closing took place on Mar 1, 2022.
However, in the third quarter, with the mutual consent of all the parties to the divestiture agreement, a decision was taken to divest Business Solutions in three stages. The second closing related to the sale of the United Kingdom operations is expected in December 2022. In the third stage, the European Union operations included within the Business Solutions unit, is expected to be divested in the first quarter of 2023. Needless to say, both closings are required to fulfill the pending regulatory approvals. How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month.
At this time, Western Union has a subpar Growth Score of D, a grade with the same score on the momentum front. However, 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.
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.
Performance of an Industry Player
Western Union belongs to the Zacks Financial Transaction Services industry. Another stock from the same industry, Equifax (
EFX Quick Quote EFX - Free Report) , has gained 21.9% over the past month. More than a month has passed since the company reported results for the quarter ended September 2022.
Equifax reported revenues of $1.24 billion in the last reported quarter, representing a year-over-year change of +1.8%. EPS of $1.73 for the same period compares with $1.85 a year ago.
For the current quarter, Equifax is expected to post earnings of $1.48 per share, indicating a change of -19.6% from the year-ago quarter. The Zacks Consensus Estimate has changed -0.2% over the last 30 days.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Equifax. Also, the stock has a VGM Score of D.