It has been about a month since the last earnings report for Western Union (WU). Shares have added about 16.2% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Western Union due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Western Union Q4 Earnings Beat on High CMT Transactions
Western Union reported fourth-quarter 2023 adjusted earnings per share (EPS) of 37 cents, which beat the Zacks Consensus Estimate by 2.8%. The bottom line rose 15.6% year over year.
Total revenues declined 3.7% year over year on a reported basis or grew 3% on a constant-currency basis to $1.05 billion. The top line beat the Zacks Consensus Estimate by 4.8%.
The better-than-expected quarterly earnings were due to strength in the branded digital business, growth in transactions, disciplined expense management and the progress of Evolve 2025. However, the poor performance of the consumer services segment due to the devaluation of the Argentine peso partially offset the results.
Adjusted operating margin of 16.1% improved 30 basis points year over year due to savings from the Operating Expense Redeployment Program and favorable changes in foreign currency. This was partially offset by a higher amount of marketing investment. The fourth-quarter adjusted effective tax rate of 14.1% was lower than 14.7% in the year-ago period.
Western Union’s total expenses were $893 million, down 5% year over year. Lower costs of services and selling, general and administrative expenses contributed to this improvement in overall expenses in the fourth quarter. The company saved $50 million in 2023 on the back of successful results of its five-year $150 million operating expense redeployment program.
The CMT or Consumer Money Transfer segment reported revenues of $975.5 million, which declined 1% year over year on a reported and constant-currency basis in the quarter under review. However, the segment’s revenues beat our estimate by 4.3%. Operating income improved 7% year over year to $148.9 million but missed our estimate by 4.2%. The operating income margin of 15.3% rose from 14.1% a year ago.
Transactions within the CMT segment increased 5.2% year over year on the back of strong Latin American and Caribbean regions, the Middle East, Africa and South Asia and North America. This metric surpassed our estimate by 5%. An improvement of 13% in Branded Digital transactions also added to the upside.
Branded Digital revenues increased 4% on a reported and constant-currency basis.
The CS or Consumer Services segment reported revenues of $76.8 million, which declined 1% year over year on a reported basis. The segment’s revenues missed our estimate by 3.2%. Operating income declined 25% year over year to $20.4 million. The metric missed our estimate by 37.9%. The operating income margin of 26.6% fell from 35.5% a year ago.
Western Union exited the fourth quarter with cash and cash equivalents of $1.27 billion, decreasing from the 2022-end level of $1.29 billion. Total assets of $8.2 billion declined from $8.5 billion at 2022-end.
Borrowings dropped from $2.6 billion at 2022-end to $2.5 billion.
Total stockholders' equity of $479 million increased from $477.8 million as of Dec 31, 2022.
In 2023, net cash provided by operating activities improved to $783.1 million from $518.6 million.
Adjusted revenues improved 0.6% year over year to $4.5 billion in 2023. Total expenses declined 1% year over year to $3.5 billion. Adjusted EPS declined 1.1% to $1.74 per share for 2023.
Western Union rewarded its shareholders with $646 million through $346 million in dividends and share buybacks worth $300 million during 2023.
The board approved a dividend of 23.5 cents per share for the first quarter of 2024, payable on Mar 29, 2024, to shareholders of record as of Mar 15, 2024.
The company expects 2024 adjusted revenues between $4.1 and $4.2 billion. The midpoint of the guidance indicates a decline of 7.2% from the 2022 figure of $4.5 billion.
Adjusted EPS is anticipated to be in the range of $1.65-$1.75 for 2024. The midpoint of the guidance indicates a decline from the 2023 reported figure of $1.74 per share.
Adjusted operating margin is expected to be between 19% and 21%. The metric stood at 19.6% in 2023.
The company expects Consumer Services to grow in double-digits in 2024. It also expects Iraq to generate revenues in the range of $50-$100 million in 2024.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
VGM Scores
At this time, Western Union has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward 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 is part of the Zacks Financial Transaction Services industry. Over the past month, Visa (V), a stock from the same industry, has gained 0.4%. The company reported its results for the quarter ended December 2023 more than a month ago.
Visa reported revenues of $8.63 billion in the last reported quarter, representing a year-over-year change of +8.8%. EPS of $2.41 for the same period compares with $2.18 a year ago.
Visa is expected to post earnings of $2.42 per share for the current quarter, representing a year-over-year change of +15.8%. Over the last 30 days, the Zacks Consensus Estimate has changed +0.3%.
Visa has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of C.
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