Yahoo Finance Western Union (WU) Down 2.2% Since Last Earnings Report: Can It Rebound?
It has been about a month since the last earnings report for Western Union (WU). Shares have lost about 2.2% 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's Q1 Earnings Beat Estimates
Western Union reported first-quarter 2023 adjusted earnings per share (EPS) of 43 cents, beating the Zacks Consensus Estimate by 30.3%. However, the bottom line declined 15.7% year over year.
Total revenues fell 10% year over year on a reported basis or 1% on a constant-currency basis to $1,036.9 million. However, the top line beat the Zacks Consensus Estimate by 3.8% and our estimate of $995.8 million.
The better-than-expected quarterly earnings were due to strength in the Middle East business, Evolve 2025’s momentum, lower consumer acquisition costs and transaction growth. However, adverse currency impact, discontinuation of operations across Russia and Belarus and promotional pricing activities affected the results.
Q1 Performance
Adjusted operating margin of 20.5% deteriorated 130 basis points year over year due to lower revenues and increased technology and market-linked investments. First-quarter adjusted effective tax rate of 13.5% was higher than 13% in the year-ago period.
Western Union’s total expenses came in at $832.2 million, down 9% year over year. Lower cost of services and SG&A expenses contributed to this decline in overall expenses in the first quarter.
C2C Segment
The C2C segment reported revenues of $938.3 million, which tumbled 6% year over year on a reported basis or 5% on a constant-currency basis in the quarter under review. The segment’s revenues beat the Zacks Consensus Estimate by 1.1%. Operating income plunged 14% year over year to $177.8 million. The operating income margin of 18.9% fell from 20.7% a year ago.
Transactions within the C2C segment fell 6% year over year, affected by the suspension of operations in Russia and Belarus. Furthermore, lower transactions across Europe and the Commonwealth of Independent States, North America and Asia Pacific region were partially offset by strong Latin American and Caribbean Region and the Middle East, Africa and South Asia.
Branded Digital revenues decreased 7% on a reported basis or 6% on a constant-currency basis.
Business Solutions
The Business Solutions segment reported revenues of $15.4 million, which plunged 83% year over year but beat the Zacks Consensus Estimate by a huge margin. Operating income of $1.9 million fell 93% year over year. The operating income margin was 12.7% in the first quarter, down from 30.8% a year ago.
Balance Sheet (as of Mar 31, 2023)
Western Union exited the first quarter with cash and cash equivalents of $1,228.6 million, decreasing from the 2022-end level of $1,285.9 million. Total assets of $8,233.5 million declined from the $8,496.3 million figure at 2022-end.
Borrowings dropped from $2,616.8 million at 2022-end to $2,462.7 million.
Total stockholders' equity of $552.8 million increased from $477.8 million as of Dec 31, 2022.
In the first quarter, net cash provided by operating activities decreased from $200 million in 2022 to $137.3 million.
Dividend Update
Western Union rewarded its shareholders with $88 million in dividends in the first quarter.
2023 Guidance
The company reiterated its guidance for 2023, which it had provided in the prior quarter. Western Union expects adjusted revenues to decline 2-4% in 2023 from the 2022 level of $1,107.3 million.
Adjusted EPS is anticipated within $1.55-$1.65 for 2023. The midpoint of the guidance indicates a decline from the 2022 reported figure of $1.76 per share.
Adjusted operating margin is expected between 19% and 21%. The metric stood at 20.4% in 2022.
Update on Business Solutions Sell-Off
Western Union had inked a deal with Goldfinch Partners LLC and The Baupost Group LLC to divest its Business Solutions unit in two stages. The first closing took place on Mar 1, 2022.
However, in the third quarter, with the mutual consent of all the parties to the divestiture agreement, a decision was taken to divest Business Solutions in three stages. The second closing related to the sale of the United Kingdom operations was made in December 2022. In the third stage, the European Union operations included within the Business Solutions unit is expected to be divested in the second quarter of 2023.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision.
VGM Scores
At this time, Western Union has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. Charting a somewhat similar path, 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions looks promising. 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 belongs to the Zacks Financial Transaction Services industry. Another stock from the same industry, Fidelity National Information Services (FIS), has gained 3.2% over the past month. More than a month has passed since the company reported results for the quarter ended March 2023.
Fidelity National reported revenues of $3.51 billion in the last reported quarter, representing a year-over-year change of +0.5%. EPS of $1.29 for the same period compares with $1.47 a year ago.
Fidelity National is expected to post earnings of $1.48 per share for the current quarter, representing a year-over-year change of -14.5%. Over the last 30 days, the Zacks Consensus Estimate has changed -0.1%.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Fidelity National. Also, the stock has a VGM Score of B.
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The Western Union Company (WU) : Free Stock Analysis Report
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