It has been about a month since the last earnings report for Western Union (WU). Shares have lost about 2.1% in that time frame, underperforming 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 drivers.
Western Union Q4 Meets Estimates
The Western Union Company reported fourth-quarter 2018 operating earnings of 49 cents per share, in line with the Zacks Consensus Estimate and up 19.5% year over year.
The growth in adjusted earnings per share was primarily due to an increase in operating profit margin, a lower effective tax rate and fewer shares outstanding, partially offset by lower revenues.
Total revenues in 2018 were $5.59 billion, up 3% on a constant currency basis and was within the company guided revenue growth range of low-to- mid single digits.
Earnings per share came in at $1.87, lower than the company’s guided range of $1.88-$1.95 .
Behind the Headlines
Total revenues of nearly $1.4 billion missed the Zacks Consensus Estimate by 1.7% and declined 3% on a year-over-year basis or 2% on a constant currency basis. Weakening of Argentine Peso led to a decline in revenues but an increase in revenue per transaction in the company’s Argentina-based businesses aided the top line.
Total operating expense of $1.13 billion was down 33% year over year due to a decline in selling, general and administrative expenses.
Revenues for the segment declined 1% on a reported basis and increased 1% on constant currency to $1.13 billion, led by higher transactions. Total transactions grew 4%, driven by strength at westernunion.com.
Revenues from westernunion.com C2C improved 21% on a reported basis and 22% on a constant currency basis. Revenues rose on the back of 25% transaction growth. Notably, westernunion.com represented 12% of total C2C revenues in the quarter under review.
Revenues increased 3% on a normal basis and 5% on a constant currency basis year over year to $96.8 million, driven by growth in both payments and foreign exchange services.
The segment reported operating income of $5.2 million as against operating loss of 3 million in the year-ago quarter.
Other segment primarily consists of the U.S. and Argentina bill payments businesses. Revenues slipped 11% but increased 10% on a constant currency basis to $177.1 million.
Operating income declined 80% to $3.3 million and operating margin contracted 610 bps to 1.8%, both on a year-over-year basis.
Cash and cash equivalents as of Dec 31, 2018 were $973.4 million, up 16.2% year over year.
As of Dec 31, borrowings rose nearly 13.2% year over year to $3.4 billion.
As of Dec 31, 2018, stockholders' equity was a deficit of $309.8 million compared with stockholder’s equity deficit of $491.4 million at year-end 2017.
Net cash from operations totaled $821.3 million up 10.7% year over year.
Share Repurchase & Dividend Update
In the reported quarter, the company returned $49 million in share buybacks to its shareholders.
The company announced a dividend of 20 cents per share, which represents a 5% increase over the previous dividend of 19 cents. The dividend is payable on Mar 29, 2019 to shareholders of record at the close of business on Mar 15, 2019.
2019 Guidance Update
The company expects revenue growth of low single digit (on a constant currency basis), operating margin of approximately 20%, EPS in a range of $1.83 to $1.95 and cash flow from operating activities of approximately $1 billion.
How Have Estimates Been Moving Since Then?
Fresh estimates followed a downward path over the past two months. The consensus estimate has shifted -5.33% due to these changes.
At this time, Western Union has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. 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.
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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