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Western Union (WU) to Post Q2 Earnings: What's in the Cards?

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Western Union Co. (WU - Free Report) is set to release second-quarter 2019 results on Aug 1.

The Zacks Consensus Estimate for earnings per share is pegged at 48 cents, indicating a 4.4% increase from the year-ago figure. Revenues are expected to be $1.34 billion, implying a decline of 5.1% from the year-ago reported figure.

Factors to Affect Q2 Results

The company’s Consumer-to-Consumer business (generates nearly 80% of the total revenues) has been witnessing sliggish revenue growth over the past many quarters. The business faces competition from many fintech players that have the ability to provide lower-cost services. Moreover, pricing action taken in some markets have also brought revenues under pressure.

In the same business segment, earnings are likely to benefit from its electronic platform, westernunion.com, as the company continues in its efforts toward driving digital expansion, offering its cross-border platform to new payment areas and generating additional operating efficiencies. This growth, however, to some extent will be offset by expected declines in U.S. domestic money transfer business.

The company is likely to gain from its WU Way initiative, which is aimed at streamlining its operations and save costs. Under this initiative, in 2018, Western Union achieved approximately $70 million in run-rate savings.

During the to-be-reported quarter, Western Union completed the sale of its Speedpay U.S. domestic bill pay business to ACI Worldwide for approximately $750 million in cash. It also completed the sale of Walletron, a provider of mobile bill presentment solutions, to ACI Worldwide for undisclosed terms. In May, Western Union also completed the sale of its Paymap mortgage payments services.

The company possibly used the funds generated from the above business sale for share buybacks, which should drive its bottom line, and to reduce debt. Its total debt is $6.9 billion compared with its stockholders deficit of $374.2 million.

Earnings in the to-be-reported quarter are likely to suffer from dilution from loss of income related to Speedpay, partly offset by share repurchases and lower net interest expenses.

Total expenses are expected to increase due to divestiture related expenses, which might weigh on operating margin.  

Earnings Surprise History

The company missed estimates in two of the trailing four quarters, with an average negative surprise of 0.24%. This is depicted in the chart below:

The Western Union Company Price and EPS Surprise

What Our Model Says

Our proven model does not conclusively show that Western Union is likely to beat on earnings this reporting cycle. This is because a stock needs to have both a positive Earnings ESP and a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. But that is not the case here as you will see below.

Earnings ESP: Western Union has an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Though Western Union carries a Zacks Rank of 3, which increases the predictive power of ESP, its 0.00% Earnings ESP makes surprise prediction difficult.

Stocks That Warrant a Look

Here are some companies from the financial services that you may want to consider as these have the right combination of elements to beat on earnings this time around:

Green Dot Corp. (GDOT - Free Report) has an Earnings ESP of +0.89% and a Zacks Rank #3. 

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

Fiserv, Inc. (FISV - Free Report) has an Earnings ESP of +2.17% and a Zacks Rank of 3.

LendingClub Corp. (LC - Free Report) has an Earnings ESP of +0.51% and a Zacks Rank #2.

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