MoneyGram International Inc. ( MGI ) reported fourth-quarter 2013 operating earnings per share of 35 cents, comfortably surpassing the Zacks Consensus Estimate by 3 cents and the year-ago quarter earnings of 26 cents. Operating net income in the reported quarter excluded negative impact of compliance enhancement program cost of 2 cents a share.
Including these adjustments, reported net income rose to $23.4 million or 33 cents per share versus $20.2 million or 28 cents per share in the year-ago quarter.
Higher money transfer transaction volumes as well as higher fee and other revenue drove the top line, while lower interest expenses helped the bottom line. However, higher operating and commission expenses reduced margins and free cash flow.
Total operating expenses rose 9.3% year over year to $342.8 million, whereas total commission expense increased 10.8% to $175.4 million. Subsequently, operating income widened to $43 million from $40.7 million in the year-ago quarter. However, interest expense plunged 43.5% from the prior year to $10 million.
MoneyGram's total revenue for the quarter was $385.8 million, up 8.9% from the year-ago period. While fee and other revenues increased 8.7% year over year to $381.7 million, investment revenue stood at $4.1 million, up 32.3% from the year-ago period.
Quarterly Segment Results
In the Global Funds Transfer segment, MoneyGram's revenues grew 10% year over year to $365.4 million. Money transfer transaction volume increased 11%, while money transfer fee and other revenue grew 11% year over year to $340 million, showcasing double-digit growth for the 9 th consecutive quarter.
Self-service money transfer revenue surged 38%, representing 7% of money transfer revenues. Moreover, MoneyGram online money transfer and bill payment transaction volume grew 32%, while revenues jumped 27% over the prior-year quarter.
Further, global agent locations increased 8% over the prior-year quarter to 336,000. Bill payment transaction volume remained flat year over year, whereas, fee and other revenues declined 2% to $25.4 million. As a result of higher commission expense, operating margin deteriorated to 12.6% from 13.6% in the year-ago quarter, whereas adjusted operating margin edged down to 11.0% from 11.5% in the year-ago quarter.
Total money transfer transactions originating outside the U.S. escalated 8% from the prior-year quarter. Additionally, MoneyGram's transactions originating in the U.S. increased 7% year over year, while U.S. outbound transaction increased 18% over the prior-year period.
In the Financial Paper Products segment, MoneyGram's total revenue fell 2.4% year over year to $20.5 million, reflecting lower fee and other revenues. Subsequently, operating margin plunged to 30.2% from 40.5% in the year-ago quarter, although commission expenses decreased 40%. Additionally, adjusted operating margin dropped to 28.8% from 38.6% in the year-ago quarter.
Full-Year 2013 Highlights
For full-year 2013, MoneyGram reported operating earnings per share of $1.21, significantly beating the Zacks Consensus Estimate of $1.13 a share and 2012 equivalent of 97 cents.
Operating earnings per share in 2013 excluded the negative impacts of legal expenses of 2 cents, restructuring and reorganization costs of 4 cents, compliance enhancement program of 2 cents and debt extinguishment costs of 40 cents.
Including these adjustments, reported net income surged to $52.4 million or 73 cents per share against net loss of $49.3 million or 69 cents per share in 2012. Total operating expenses climbed 6% year over year to $1.3 billion, whereas total commission expense escalated 13.1% to $687.2 million.
Total revenue increased 9.9% to $1.47 billion in 2013, driven by 12% growth in total money transfer revenue. MoneyGram has also been gaining traction with the raised momentum in self-service that jumped 30% in 2013, representing 6% of money transfer revenue, and online money transfer revenues that surged 44% over 2012.
As of Dec 31, 2013, MoneyGram had cash and cash equivalents of $2.23 billion (down from $2.68 billion at 2012-end), net receivables of $767.7 million (down from $1.21 billion) and available-for-sale investments of $48.1 million (down from $63.5 million).
The company exited 2013 with $842.9 million of outstanding debt (up from $809.9 million at 2012-end), and assets in excess of payment service obligations of $318.8 million (up from $227.9 million).
Adjusted free cash flow decreased 10% year over year to $21.7 million in the reported quarter, primarily due to higher signing bonuses and capital expenditures, partially offset by lower interest payments. However, adjusted free cash flow surged 29% to $149.8 million in 2013.
Guidance for 2014
Management detailed the 2014 guidance and expects total revenue to grow 8-10% on a constant currency basis, while adjusted EBITDA growth is projected in the band of 7-9%. However, including direct monitor costs, adjusted EBITDA growth is likely to be within 5-7% on a constant currency basis.
Global Transformation Program
Concurrently, MoneyGram provided a long-term outlook that it aims to achieve in order to fuel multi-channel growth and improve cost structure.
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.
Furthering its reorganization and restructuring initiatives, MoneyGram aims 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 2015-end. In this regard, the company also projects to incur cash outlay of $30-40 million over the next two years.
Additionally, MoneyGram expects to incur cash outlays for fraud losses of about $80-90 million till 2017.
Other Stocks to Consider
Some better-ranked stocks in the financial sector are American Express Co. ( AXP ), Global Payments Inc. ( GPN ) and Equifax Inc. ( EFX ), all of which carry a Zacks Rank #2 (Buy). Meanwhile, MoneyGram presently carries a Zacks Rank #3 (Hold).