The Western Union CompanyWU reported fourth-quarter 2017 adjusted earnings per share (EPS) of 47 cents, beating the Zacks Consensus Estimate of 43 cents. Also, the bottom line improved nearly 12% year over year.
Adjusted net income came in at $229.9 million in the reported quarter, up from $212.3 million recorded in the prior-year quarter.
Including impact of $1.18 owing to charge related to settlements with U.S. regulators to resolve investigations tied with the company's oversight of certain agents and anti-fraud program as well as anti-money laundering controls, and an impact of 2 cents from expenses tied to company's spending on a new business transformation program (WU Way), Western Union reported loss of $355 million or 73 cents per share in the reported quarter.
For full-year 2016, adjusted EPS of $1.75 outpaced the Zacks Consensus Estimate of $1.66. Also, it improved from the year-ago figure of $1.67. Adjusted net income for 2016 was $861.7 million, compared with $862.0 million in 2015.
Behind The Headlines
For 2016, Western Union's total revenues came in at $5.42 billion, in line with the Zacks Consensus Estimate. However, it edged down 1% on a year-over-year basis. Revenues (constant currency adjusted) were $5.64 billion in the year.
Total revenue of $1.37 billion in fourth-quarter 2016, came in line with the Zacks Consensus Estimate. However, revenues dipped 1% year over year. The decline was mainly due to lower transaction fees, partially offset by higher foreign exchange revenues as well as other revenues. Revenues (constant currency adjusted) were $1.43 billion in the reported quarter, down 1.6% year over year.
Western Union's total expenses increased 53% year over year to $1.69 billion in the reported quarter. The quarter included $571 million charge tied with settlement with regulators.
Adjusted operating margin was 19.7% in the reported quarter, down from 20.4% in the prior-year quarter. The decline was mainly due to the negative impact of foreign exchange and incremental technology investment.
Revenues at Consumer-to-Consumer (C2C), which is the main contributor to the company's top line, remained largely flat year over year at $1.1 billion in the reported quarter. On constant currency basis, revenues grew 3%. The quarter witnessed higher transactions led by increases in the U.S. originated business. Westernunion.com C2C revenues also increased.
In Consumer-to-Business, revenues declined 4% year over year to $155.2 million due to depreciation of the Argentine peso. On a constant currency basis, revenues climbed 9% driven by the Argentina walkin and U.S. electronic bill payments businesses.
Also, Business Solutions' revenues were down 3% year over year to $98.8 million. On a constant currency basis, revenues inched up 1%.
Cash and cash equivalents as of Dec 31, 2016 were $877.5 million, down 33.3% from the 2015-end level.
As of Dec 31, 2016, stockholders' equity was $902.2 million, down 35.8% from year-end 2015.
Dividend Hike, New Share Buyback Program
Western Union declared a quarterly cash dividend of 17.5 cents per share, reflecting an increase of 9% from the previous dividend. The new dividend will be paid on Mar 31, 2017 to shareholders of record as of Mar 17.
Also, the company announced a new $1.2-billion share repurchase authorization with an expiration date of Dec 31, 2019. Notably, the new share buyback program is in addition to the $231 million outstanding under the previous authorization at year end.
Western Union expects the overall macro environment in 2017 to be largely in line with 2016, with persistent headwinds, including strengthening of the U.S. dollar and softness in oil producing markets.
Management stated that the WU Way program is designed to transform the company's operating model in order to improve customer experience and drive cost efficiencies. These initiatives center on areas including technology transformation and network productivity. The company anticipates further spending of about $100 million in 2017.
The company expects GAAP revenues to be flat to low-single digit decline. On a constant currency, revenues are likely to exhibit low-single digit growth.
GAAP operating margin is estimated at about 18% while adjusted operating margin is projected at 20%. Western Union expects the efficiency initiatives included in the WU Way program to generate savings of about $20 million in 2017 and an additional $25 million in 2018. The margin guidance considers a negative foreign exchange impact of about 50bps, and compliance expense in the higher end of the range of 3.5-4.0% of revenue.
Further, Western Union expects GAAP EPS in a range of $1.48-$1.60. Adjusted EPS, which excludes the impact of the WU Way related expenses, is estimated in the range of $1.63-$1.75.
The EPS guidance considers around 9 cents negative impact from foreign exchange, and assumes a GAAP effective tax rate of about 11% and an adjusted effective tax rate of around 13%.
Results of Western Union do not reflect a strong quarter. Macro headwinds and regulatory issues remain key concerns. However, the company remains well poised for growth given its strategic investments in new products, services and technology.
Western Union Company (The) Price, Consensus and EPS Surprise
Western Union currently carries a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
Performance of Other Stocks
Fidelity National Information Services Inc.'s FIS fourth-quarter 2016 adjusted earnings per share from continuing operations came in at $1.14, in line with the Zacks Consensus Estimate. Earnings improved 22.6% from the year-ago quarter figure of 93 cents.
Total System Services, Inc.'s TSS fourth-quarter 2016 operating earnings per share of 69 cents (adjusting for share-based compensation) beat the Zacks Consensus Estimate of 65 cents. Also, it improved 30.2% year over year.
Alliance Data Systems Corporation ADS reported core earnings attributable to stockholders per share of $4.67, up 13% year over year. The Zacks Consensus Estimate was $4.41.
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