It has been about a month since the last earnings report for The Western Union Company (WU - Free Report) . Shares have lost about 4% in that time frame, underperforming the market.
Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted 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 Beats on Q2 Earnings
Western Union reported second-quarter 2017 operating earnings per share of 50 cents, comfortably beating the Zacks Consensus Estimate of $0.42 per share by 19%. Earnings also improved 13.6% year over year.
Each of the segments delivered improved operating profit in the quarter.
Behind The Headlines
Total revenue of $1.379 billion increased 0.2% year-over-year and beat Zacks Consensus Estimate of $1.372 billion.
Western Union’s total expense increased 4.4% year over year to $1.2 billion.
Adjusted operating margin was 21.7%, expanded 150 basis points year over year. This improvement stemmed from the timing of marketing spending and lower commission expenses.
The company continues to remain focused to expand its digital initiatives, optimize the retail money transfer business and drive operational efficiencies.
Revenues of the Consumer-to-Consumer (C2C) segment, which contributes nearly 79% to the company’s top line, slipped 1% on a year-over-year basis, but was again up 1% on a constant currency basis to $1.1 billion. Total transactions grew 3%, driven by the strength at westernunion.com. Revenues from westernunion.com surged 21% or 23% on a constant currency basis on transaction growth of 25%. Notably, westernunion.com represented 9% of total C2C revenue in the reported quarter.
Operating income increased 7% year over year to $269.9 million. Operating margin expanded 180 basis points to 24.8%.
Business Solutions revenues decreased 4% or 1% on a constant currency basis year over year to $96.6 million. This segment reported operating income of $5.3 million in the quarter, up 1% year over year. Operating margin expanded 30 basis points to 5.5%.
Other revenues, consisting of the U.S. as well as Argentina bill payments businesses, improved 9% or 12% on a constant currency basis. This upside was fueled by better performance at Speedpay U.S. electronic and Pago Facil Argentina walk-in bill payments businesses.
The businesses, previously being reported in a separate Consumer-to-Business segment, are now reported in Other, due to recent organizational changes.
Operating income rallied 16% year over year to $23.6 million. Operating margin expanded 80 basis points to 12.1%.
Cash and cash equivalents as of Jun 30, 2017 were $1.1 billion, up from $0.9 billion at 2016- end.
As of Jun 30, 2017, the stockholders’ equity was $661 million, massively down from $902 million at year-end 2016.
Cash used in operating activities was $24 million in the first half of 2017 compared with $485.6 million of cash generated from operations at the same time around in 2016.
Share Repurchase and Dividend Update
In the reported quarter, the company returned $232 million to its shareholders through share repurchases ($150 million) and dividends ($82 million).
2017 Guidance Revised
Western Union lowered its outlook for 2017. It expects growth of flat-to-low single digit decrease in GAAP revenues, or a low single-digit increase on a constant currency basis. The company projects GAAP operating margin of approximately 17% (curtailed from18%) and adjusted operating margin of approximately 20%. Besides, the GAAP EPS is projected in a range of $1.46-$1.56 ($1.48-$1.60, guided earlier) and adjusted EPS in a $1.70-$1.80 band ($1.63-$1.75 guided earlier). Adjusted EPS excludes the impact of the WU Way related expenses.
Cash flow from operating activities is estimated to be $200 million.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed a downward trend in fresh estimates. There have been three revisions higher for the current quarter compared to six lower.
At this time, Western Union's stock has a poor Growth Score of F, however its Momentum is doing a lot better with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Zacks' style scores indicate that the company's stock is suitable for value and momentum investors.
Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. Interestingly, the stock has a Zacks Rank #2 (Buy). We are looking for an above average return from the stock in the next few months.