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Western Union (WU) Misses Q4 Earnings, Issues 2018 Guidance

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The Western Union Company (WU - Free Report) reported fourth-quarter 2017 operating earnings per share of 41 cents, which missed the Zacks Consensus Estimate by 6.8%. The bottom line also declined 12.8% year over year.

Net earnings per share was adversely impacted by the tax act. The company incurred a non-cash goodwill impairment charge related to the Business Solutions reporting unit. This led the company to face net loss of $2.44 per share compared with loss of 73 cents incurred in the year-ago period.

Behind the Headlines

Total revenues of $1.4 billion increased 5% on a year-over-year basis but was up 4% on a constant currency basis. Top-line growth was driven by decent performance in the company’s consumer money transfer business and continued strong growth in the bill payments businesses.

Western Union incurred an operating loss of $252.5 million compared with operating loss of $313.5 million in the year-ago period.

Adjusted operating margin of 17.9% declined 180 basis points (bps) year over year due to incremental marketing spending to drive revenue growth and the negative impact of foreign exchange.

Western Union Company (The) Price, Consensus and EPS Surprise

Segment Update

Consumer-to-Consumer (C2C)

Revenues for the segment increased 5% on a reported basis and 4% on a constant currency to $1.14 billion.  
Total transactions grew 3%, driven by strength at westernunion.com.

Revenues from westernunion.com C2C increased 22% both on a reported and constant currency basis. Notably, westernunion.com represented 10% of total C2C revenues in the quarter.

Operating income declined 2% year over year to $245.1 million.

Disappointing Performance at Business Solutions

Revenues decreased 4% on a reported basis or 8% on a constant currency basis year over year to $94.3 million.

The segment reported operating loss of $3 million in the quarter against operating earnings of $9.6 million in the year-ago quarter.

It reported operating margin of negative 3.2% against operating margin of 9.7% in the year-ago quarter.

Other

Other segment primarily consists of the U.S. and Argentina bill payments businesses. Revenues increased 11% in the quarter or 14% on a constant currency basis to $199.5 million.

The upside was driven by the Speedpay U.S. electronic and Pago Facil Argentina walk-in bill payments businesses.  

Operating income grew 32% to $15.6 million and operating margin rose 120 bps to 7.8%, both on a year-over-year basis.

Weak Balance Sheet

Cash and cash equivalents as of Dec 31, 2017 were $838.2 billion, down 4.5% year over year.

At year-end 2017, borrowings rose 8.9% to $3 billion from year-end 2016.

As of Dec 31, 2017, stockholders' equity was a deficit of $491.4 million compared with stockholder’s equity of $902.2 million at year-end 2016.

For 2017, net cash from operations totaled $735.8 million, down 29% from the prior year.

Capital Deployment

In the reported quarter, the company returned $92 million (consisting of $12 million of share repurchases and $80 million of dividends) to its shareholders.

Dividend Increases

The company hiked its quarterly dividend by 9% to 19 cents per share. The increased dividend will be payable on Mar 30, 2018 to shareholders of record at the close of business on Mar 16.

2018 Guidance

The company expects strong performance in 2018 which will be driven by growth in its digital platform and focus on cross-border money movement.

On the back of these, the company expects 2018 revenues to grow in low to mid-single digit in GAAP and constant currency basis; operating margin of approximately 20%; effective tax rate of approximately 15% to 16%; EPS in a range of $1.78 to $1.90 and cash flow from operating activities of approximately $800 million.

Zacks Rank and Performance of Other Stocks

Western Union carries a Zacks Rank #5 (Strong Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

American Express Co. (AXP - Free Report) , Discover Financial Services (DFS - Free Report) and Alliance Data Systems Corp. (ADS - Free Report) from the same space came out with flying colors, with their bottom lines beating the respective Zacks Consensus Estimate in the fourth quarter.

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