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Western Union (WU) Down 16.8% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Western Union (WU - Free Report) . Shares have lost about 16.8% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Western Union due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Western Union Q4 Earnings & Revenues Miss Estimates

The Western Union operating earnings of 38 cents per share, missed the Zacks Consensus Estimate by 11.6%. The bottom line also declined 22.4% year over year.

The downside resulted from increased tax rate, higher marketing investment and adverse impacts of the divestiture of Speedpay and Paymap businesses in May 2019.

Behind the Headlines

Total revenues of $1.3 billion missed the Zacks Consensus Estimate by 1% but were up 3% on a constant-currency basis. Weakening of Argentine Peso led to a 2% decline in revenues, which was partly offset by positive effects of inflation in the company’s Argentina-based business by 1%.
Total expenses of $1.11 billion were down 4% year over year due to reduced cost of services.

Segment Update

Consumer-to-Consumer (C2C)

Revenues of $1.13 billion remained flat on a reported basis and increased 1% on a constant-currency basis. Total transactions declined 1%. Growth was driven by cross-border sends originated in Europe, the United States and Latin America, partially offset by declines in the Asia Pacific, U.S. domestic money transfer and some countries dealing with civil unrest, macro-economic, and market-specific issues.

Operating income of $228.1 million declined 13% year over year.

Revenues from westernunion.com C2C improved 17% on a reported basis and 18% on a constant-currency basis. Notably, westernunion.com represented 15% of total C2C revenues in the reported quarter.

Business Solutions

Revenues of $97 million were flat on a reported basis but increased 1% in constant currency, driven by strong performance in Europe.

The segment reported operating income of $11 million, up 111.5% year over year.

Balance Sheet

Cash and cash equivalents (as of Dec 31, 2019) were $1.5 billion, up 49% from that at the end of 2018.

Borrowings declined nearly 6% from the year-end level to $3.23 billion.

Stockholders' equity was a deficit of $39.5 million compared with a deficit of $309.8 million at the end of 2018.

At the end of the quarter, the company generated net cash of $914.6 million from operations, up 11.4% from the end of 2018.

Dividend Hike

Owing to the company’s promising 2020 outlook, with respect to margin expansion and adjusted EPS (earnings per share) growth, Western Union raised its quarterly dividend by 13% to 22.5 cents  per common share. The dividend will be paid out on Mar 31, 2020, to shareholders of record at the close of business on Mar 17, 2020.

2020 Guidance Update

The company expects low-single-digit revenue growth (on a constant-currency basis), adjusted operating margin of 21%, adjusted EPS of $1.95-$2.05 and adjusted cash flow of $1 billion from operating activities.

Long-Term Outlook

The company affirmed its previously established three-year (2019-2022) financial targets, which includes approximately 23% operating margin and low-double-digit EPS (CAGR).



 

How Have Estimates Been Moving Since Then?

It turns out, estimates review flatlined during the past month.

VGM Scores

At this time, Western Union has a nice Growth Score of B, however its Momentum Score is doing a bit 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 A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Western Union has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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