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Western Union (WU) Q3 Earnings Beat Estimates, Decline Y/Y

The Western Union Co.'s  WU third-quarter 2020 earnings of 57 cents per share surpassed the Zacks Consensus Estimate by 21.28%. However, the bottom line fell 16.3% year over year.

Earnings reflected gains from the company’s productivity initiatives, additional cost savings, and a lower effective tax rate plus share count, partially offset revenue declines.

Behind the Headlines

Total revenues of $1.26 billion beat the Zacks Consensus Estimate by 0.66% but the top line dipped 4% year over year. Revenues were weighed down by the continuing macroeconomic impact from COVID-19, offset by the improving consumer money transfer fundamentals.

Digital money transfer revenues surged 45% year over year or 46% on constant currency basis. Total expenses of $973.3 million fell 12% year over year owing to reduced cost of services as well as selling, general and administrative expenses.

Adjusted operating margin was 23.5%, up 120 basis points year over year. Margin expansion was primarily driven by productivity savings and additional cost savings related to the effect of the COVID-19 pandemic, partially offset by weak revenues.

The Western Union Company Price, Consensus and EPS Surprise

The Western Union Company price-consensus-eps-surprise-chart | The Western Union Company Quote

Segmental Update

Consumer to Consumer (C2C)

Revenues of $1.12 billion slid 1% on a reported basis but were flat year over year on constant currency (CC) basis. Total transactions increased 6%.

Digital revenues and transactions represented 21% and 31% of the C2C business in the quarter, respectively. Within the digital money transfer business, westernunion.com revenues surged 33% reportedly and 32% at cc including cross-border revenue growth of 46%.
Operating income of $272.4 million inched up 3% year over year.

Operating margin expanded 90 basis points year over year to 24.6%.

Business Solutions

Revenues of $89.1 million deteriorated 11% on a reported basis or 13% on constant currency basis, primarily due to the ongoing macroeconomic issues stemming from COVID-19 effect on small and medium-sized enterprises, travel and tourism, and education.

The segment reported operating income of $9.4 million, down 44% year over year. Operating margin shrank 620 basis points year over year to 10.5%.

Balance Sheet (as of Sep 30, 2020)

Cash and cash equivalents were $1.25 billion, down 13.7% from the level at 2019 end.

Borrowings dipped 5.9% to $3.06 billion from the level at 2019 end.

Stockholders' equity was $67.1 million, came against the deficit of $39.5 million at the end of 2019.

Decrease in Cash Flow From Operations

Cash flow from operating activities was $586 million in the first nine months of 2020, down 12% year over year, due to the timing of payments for restructuring and other activities, partially offset by lower income tax payments and higher operating income.

2020 Outlook

The company provided an earnings guidance assuming that there will be no material changes from the current macroeconomic conditions and that the COVID-19 pandemic will not worsen further.

Therefore the company expects adjusted constant currency revenues to decline by a mid-single digit (excluding any benefit related to the Argentina inflation) and adjusted EPS in the range of $1.80 -$1.85.
The stock carries a Zacks Rank #3 (Hold).

Zacks Rank and Stocks to Consider

The Western Union carries a Zacks Rank #3 (Hold), currently. Better-ranked players in the same space include Cardtronics PLC, CATM, Envestnet Inc. ENV and INTERNATIONAL MONEY EXPRESS, INC. IMXI. While both Cardtronics and Envestnet carry a Zacks Rank #2 (Buy), currently,  INTERNATIONAL MONEY EXPRESS sports  a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Earnings of Cardtronics and Envestnet surpassed estimates in each of the last four quarters, the average being  87.88% and 14.28%, respectively.

The bottom line of INTERNATIONAL MONEY EXPRESS surpassed estimates in two of the trailing four quarters (missed in one and met in the other), the average surprise being 10.82%.

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The Western Union Company (WU) : Free Stock Analysis Report
 
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