MoneyGram International Inc.
) reported second-quarter 2014 operating earnings per share of 28
cents, lagging the Zacks Consensus Estimate and the year-ago
quarter figure, both of which were 32 cents, by 12.5%. Results
deteriorated primarily due to significant decline in U.S. money
transfer transaction volumes given the launch of Wal-Mart Stores
) competitive product that led to a lower top line.
With this result, the company's average four-quarter beat stands
at 2.9%. However, shares of MoneyGram dipped 0.5% following the
Operating net income plunged 20.8% year over year to $17.9
million. Including adjustments, reported net income surged to $25.6
million or 40 cents per share from $19.1 million or 27 cents per
share in the year-ago quarter.
Total operating expenses rose 8.9% year over year to $351.3
million primarily due to higher compensation and operating
expenses. Total commission expense edged up 1.2% to $171.7 million.
Subsequently, operating income sank 50.4% to $21.1 million from
$42.5 million in the year-ago quarter.
Interest expense also increased 15.2% from the prior year to
$11.1 million. Total earnings before interest, taxes, depreciation
and amortization (EBITDA) improved 7.9% year over year to $69.8
million, while adjusted EBITDA fell 3.1% to $68.1 million.
MoneyGram's total revenue for the quarter was $372.4 million, up
2% from the year-ago period and breezing past the Zacks Consensus
Estimate of $372 million. While fee and other revenues increased 2%
year over year to $368.8 million, investment revenues stood at $3.6
million, slightly down from $3.7 million in the year-ago
Quarterly Segment Results
Global Funds Transfer
segment, MoneyGram's revenues grew 2.4% year over year to $352.8
million. Money transfer transaction volume increased 4%, while
money transfer fee and other revenue grew 2.7% year over year to
$328.2 million, reflecting single-digit growth for the first time
after 10 consecutive quarters of double-digit growth.
Further, global agent locations increased 6% from the prior-year
quarter to 345,000. Total money transfer transactions originating
outside the U.S. escalated 10% from the prior-year quarter.
Additionally, the U.S. outbound transaction increased 15% from the
prior-year period driven by 21% growth in transactions to Mexico
from the U.S.
However, MoneyGram's transactions originating in the U.S.
decreased 11% year over year due to 31% decline in transactions
originated at U.S-to-U.S., Walmart-to-Walmart, along with 33% fall
in revenues, which accounted for 23% of total revenues.
Self-service money transfer revenues surged 42% from the
prior-year quarter, representing 8% of money transfer revenues.
Money transfer transaction volumes spiked 60% and contributed 10%
to total transaction volumes. Moreover, MoneyGram online money
transfer and bill payment transaction volume grew 41%, while
revenues jumped 31% from the prior-year quarter. Bill payment fee
and other revenues decreased 1.2% to $24.5 million.
As a result of higher commission expense, operating margin
deteriorated to 5.5% from 11.8% in the prior-year quarter, whereas
adjusted operating margin declined to 10.4% from 12.5% a year
Financial Paper Products
segment, MoneyGram's total revenue fell 3.4% year over year to
$19.6 million, reflecting lower fee and other revenue within both
money order and official check sub-segments. Subsequently,
operating margin declined to 31.1% from 37.4% in the year-ago
quarter, although commission expenses remained flat. Additionally,
adjusted operating margin dipped to 38.8% from 38.9% in the
As of Jun 30, 2014, MoneyGram had cash and cash equivalents of
$2.05 billion (down from $2.23 billion at 2013-end), net
receivables of $941.8 million (up from $767.7 million) and
available-for-sale investments of $40.2 million (down from $48.1
The company exited the quarter with $968.3 million of
outstanding debt (up from $842.9 million at 2013-end), and assets
in excess of payment service obligations of $349.1 million (up from
Adjusted free cash flow decreased 37% year over year to $30.2
million in the reported quarter, primarily due to higher
investments in the global transformation program and increased
Guidance for 2014
Management reiterated its guidance, which was lowered in Apr
2014 due to the cannibalization from Wal-Mart product. Total
revenue is expected to grow 1-3% on a constant currency basis,
which was slashed from the prior estimate of 8-10% in Apr 2014.
Further, adjusted EBITDA growth is projected in the band of 0-2%
that fell from the prior projection of 7-9%.
Global Transformation Program
In Feb 2014, MoneyGram provided a long-term outlook that it aims
to achieve to fuel multi-channel growth and improve cost
By 2017, the company targets annual revenues of $2 billion and
expects self-service products to contribute 15-20% to money
transfer revenues. In order to attain this goal, MoneyGram plans to
augment investment in its online and mobile, account deposit as
well as kiosk-based money transfer services, thereby aggressively
expanding its market presence by improving back-end processes and
product efficiencies for these products.
As part of its global transformation program, the company also
announced the opening of a new location in Poland - MoneyGram
Global Business Center - in late 2014. The new outlet is aimed at
enhancing global talent base and cost efficiency.
Taking forward its reorganization and restructuring initiatives,
MoneyGram targets to enhance operating efficiencies, realign
certain businesses and reduce costs, all of which should result in
annual pre-tax cost savings at a run-rate of $15-20 million by
In this regard, the company also projects to incur cash outlay
of $30-40 million over the next two years, of which $14.9 million
was incurred in the first half of 2014. In all, MoneyGram incurred
$14.5 million in operating expenses and $7.8 million as capital
expenditure in the first half of 2014. The company also incurred
expenses worth $6.7 million related to severance accruals.
Additionally, MoneyGram expects to incur cash outlays for fraud
losses of about $80-90 million till 2017.
Stocks to Consider
Currently, MoneyGram carries a Zacks Rank #3 (Hold). However,
one could consider better-ranked in the financial sector like
Euronet Worldwide Inc. (
) and Moody's Corp. (
), of which have a Zacks Rank #2 (Buy).
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