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Why Is Western Union (WU) Down 1.1% Since its Last Earnings Report?

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It has been about a month since the last earnings report for The Western Union Company (WU - Free Report) . Shares have lost about 1.1% in that time frame.

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

Western Union Beats on Q1 Earnings, Updates 2018 View

The Western Union Company reported first-quarter 2018 operating earnings per share of 45 cents, which surpassed the Zacks Consensus Estimate by 7.1%. The bottom line also improved 28.6% year over year on higher revenues, lower tax and reduction in share count.

Behind the Headlines

Total revenues of nearly $1.4 billion increased 6.7% on a year-over-year basis and 5%, on a constant currency basis. The top-line growth was driven by consumer money transfer business.

Western Union generated operating income of $264.9 million, up 10% year over year.

Adjusted operating margin of 19.1% declined 40 basis points (bps) year over year due to higher marketing spend and the negative impact of foreign exchange, partially offset by operating leverage from revenue growth.

Segment Update

Consumer-to-Consumer (C2C)

Revenues for the segment increased 7% on a reported basis and 5% on constant currency to $1.1 billion. Total transactions grew 4%, driven by strength at westernunion.com.

Revenues from westernunion.com C2C increased 23% on a reported basis and 20% on a constant currency basis. Revenues rose on the back of 24% transaction growth. Notably, westernunion.com represented 11% of total C2C revenues in the quarter under review.

Operating income increased 6% year over year to $241.7 million. Operating margin contracted 30 bps to 22.2%

Business Solutions

Revenues grew 3% reportedly but declined 2% year over year to $96.7 million at constant currency.

The segment reported operating income of $2.8 million in the quarter, up 19% year over year.

Its operating margin expanded 30 bps to 2.9%

Other

Other segment primarily consists of the U.S. and Argentina bill payments businesses. Revenues increased 4% in the first quarter or 10% on a constant currency basis to $201.7 million. This upside was driven by the Pago Facil Argentina walk-in and the Speedpay U.S. electronic bill payments businesses.  
Operating income declined 15% to $20.4 million and operating margin contracted 230 bps to 10.1%, both on a year-over-year basis.

Balance Sheet

Cash and cash equivalents as of Mar 31, 2018 were $934.3 billion, up 11.5% from 2017-end level.

At quarter-end, borrowings rose 3.6% to $3.1 billion from year-end 2017.
As of Mar 31, 2018, stockholders' equity was a deficit of $375.8 million compared with stockholder’s equity deficit of $491.4 million at year-end 2017.
Net cash from operations totaled $133 million, up 53.8% from the prior year.

Dividend Update

In the reported quarter, the company returned $88 million in dividends to its shareholders.

2018 Guidance Revised

Expecting more favorable impact of tax rate, the company revised its outlook.
In the light of these, the company expects 2018 revenues to grow in low to mid-single digit in GAAP and on constant currency basis; operating margin of approximately 20%; effective tax rate of about 14% and the adjusted tax rate of roughly 15%.

EPS is projected in the range of $1.80-$1.90 (revised from the earlier guided band of $1.78-1.90) and cash flow from operating activities at approximately $800 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. There have been two revisions higher for the current quarter compared to six lower.

The Western Union Company Price and Consensus

 

VGM Scores

At this time, WU has an average Growth Score of C, however its Momentum is doing a lot better with an A. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile 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.

Based on our scores, the stock is primarily suitable for momentum investors while also being suitable for those looking for value and to a lesser degree growth.

Outlook

Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. Notably, WU has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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