It has been about a month since the last earnings report for Western Union (WU). Shares have added about 1.9% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Western Union due for a pullback? 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 drivers.
Western Union Q2 Earnings Meet, Iraq Results Dismal
Western Union posted second-quarter adjusted earnings per share (EPS) of 44 cents, which matched the Zacks Consensus Estimate. However, the bottom line declined 13.7% year over year.
Total revenues of $1.1 billion fell 9% year over year on a reported basis and 7% on an adjusted basis due to lower contributions from Iraq and the divestiture of Business Solutions. The top line beat the Zacks Consensus Estimate by 0.6%.
The quarterly results suffered a blow due to a revenue and operating income decline as a result of reduced Iraq contributions and increased currency volatility. Nevertheless, the Consumer Money Transfer (“CMT”) unit saw transaction growth as a result of the solid performance of the Branded Digital business. A decline in overall expenses also provided some respite to margins.
Q2 Performance
Adjusted operating margin deteriorated 280 basis points (bps) year over year to 19% due to reduced contribution from Iraq and increased foreign currency volatility. Adjusted effective tax rate remained stable year over year at 16%.
Total expenses declined 6% year over year to $875.7 million but were higher than our estimate of $853.1 million. The year-over-year decrease was due to lower costs of services and selling, general and administrative expenses. The company incurred $9.4 million in redeployment costs.
Operating income tumbled 21% year over year to $190.7 million, thereby missing our estimate of $198.3 million.
Segment Analysis
The CMT segment’s revenues fell 10% year over year to $965 million in the second quarter. Nevertheless, the metric outpaced the Zacks Consensus Estimate of $956.8 million and our estimate of $962.1 million. Operating income of $191.5 million declined 17% year over year and fell short of the consensus mark of $196 million but surpassed our estimate of $184.2 million. The operating income margin deteriorated 170 bps year over year to 19.8%.
Transactions within the CMT segment grew 4% over year on the back of 13% transaction growth in the Branded Digital business. Accounting for 24% of CMT’s revenues, Branded Digital revenues advanced 5% on a reported basis and 7% on an adjusted basis.
The CS, or Consumer Services, segment recorded revenues of $101.4 million, which climbed 21% year over year on the back of the expansion of its retail foreign exchange offerings and the sustained strong performance of its Retail Money Order business. The unit’s revenues outpaced the Zacks Consensus Estimate of $82.7 million and our estimate of $89.3 million. However, operating income of $11.1 million plunged 39% year over year and was higher than the consensus mark of $7 million. The metric, however, fell short of our estimate of $18.3 million. Operating income margin deteriorated 1,100 bps year over year to 11%.
Financial Position (as of Jun 30, 2024)
Western Union exited the second quarter with cash and cash equivalents of $1 billion, which fell 18.6% from the 2023-end level. Total assets of $8 billion slipped 2.8% from the figure at 2023 end.
Borrowings were $2.6 billion, up 5.2% from the figure as of Dec 31, 2023.
Total stockholders' equity of $440.8 million declined 8% from the 2023-end figure.
In the first half of 2024, net cash provided by operating activities declined more than four-fold from the prior-year comparable period to $60.2 million.
Capital Deployment
Western Union rewarded its shareholders with $112 million through $81.8 million in dividends and share buybacks worth $30.2 million during the second quarter.
2024 Guidance
Management continues to expect 2024 adjusted revenues to be between $4.150 billion and $4.225 billion. It expects Iraq to generate revenues in the range of $10-$30 million per quarter for the remaining part of this year.
Adjusted EPS is still anticipated to be in the range of $1.70-$1.80, the mid-point of which indicates a 0.6% improvement from the 2023 level.
Adjusted operating margin is still expected to be between 19% and 21%. The metric was 19.6% in 2023.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended upward during the past month.
VGM Scores
At this time, Western Union has a poor Growth Score of F, a grade with the same score on the momentum front. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions has been net zero. Notably, Western Union has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Western Union is part of the Zacks Financial Transaction Services industry. Over the past month, Bread Financial Holdings (BFH), a stock from the same industry, has gained 5.5%. The company reported its results for the quarter ended June 2024 more than a month ago.
Bread Financial reported revenues of $939 million in the last reported quarter, representing a year-over-year change of -1.4%. EPS of $2.66 for the same period compares with $1.27 a year ago.
Bread Financial is expected to post earnings of $2 per share for the current quarter, representing a year-over-year change of -42.2%. Over the last 30 days, the Zacks Consensus Estimate has changed +5.4%.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Bread Financial. Also, the stock has a VGM Score of A.
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