Why is Western Union (WU) down 3.8% since its last earnings report?

A month has passed since Western Union’s (WU) last earnings report. Shares have lost about 3.8% in that time, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Western Union poised for a breakout? Before we dive into the recent reaction from investors and analysts, let’s take a quick look at the company’s most recent earnings report in order to get a better handle on the important factors influencing the situation.

Western Union’s first-quarter earnings beat the result thanks to the brand’s strength in digital technologies

Western Union reported strong first quarter 2024 results, driven by the resilience of its Branded Digital business, transaction growth, strong consumer remittance performance and stabilization of its retail business. Good results prompted the company to raise its full-year outlook. However, increased spending mitigated some of the gains.

It announced first-quarter 2024 adjusted earnings per share (EPS) of 45 cents, which would represent growth of 12.5% ​​ahead of the Zacks Consensus Estimate. The financial result increased by almost 5% year on year.

Total revenue increased more than 1% year-over-year on a reported basis, or 3% on an adjusted basis, to nearly $1.05 billion. The top line surpassed the Zacks Consensus Estimate by 3.9%.

Let’s dig deeper.

Performance in the first quarter

Adjusted operating margin of 19.7% deteriorated 80 basis points year-over-year due to the timing of marketing expenses and increased staffing redeployment costs. The first quarter adjusted effective tax rate of 15.6% was higher than 13.5% in the year-ago period due to the impact of the Business Solutions divestment.

Western Union’s total expenses were $857 million, up 3% year-over-year due to higher service and selling, general and administrative costs. The company incurred $14 million in relocation costs in the first quarter. Operating income of $192.1 million declined 6% year-over-year.

Segment analysis

CMT or Money transfer for consumers the segment saw revenue of $962 million, up 3% year-over-year in the quarter. The result was better than our estimates by 4.2%. Operating profit increased 6% year over year to $187.6 million and significantly exceeded our estimates. The operating profit margin of 19.5% increased from 18.9% a year earlier.

Transactions in the CMT segment grew 6% year over year, driven by strong regions in Latin America and the Caribbean, Middle East, Africa, South Asia and North America. This indicator exceeded our estimates by 1.5%. A 13% improvement in Branded Digital transactions also contributed to the improvement. Branded Digital revenue increased 9% on a reported and adjusted basis.

The story continues

CS or Consumer services the segment saw revenue of $87.1 million, up 5% year-over-year on the strength of its retail remittance business. Segment revenues beat our estimates by 3.6%. However, operating income declined 42% year-over-year to $18.6 million, which fell well short of our estimates. The operating profit margin of 21.3% fell from 38.6% a year earlier.

Financial situation (as of March 31, 2024)

Western Union ended the first quarter with cash and cash equivalents of $1.1 billion, down from the end-2023 level of $1.3 billion. Total assets of $8.1 billion fell from $8.2 billion at the end of 2023.

Debt remained stable at approximately $2.5 billion.

Total shareholder equity of $397.9 million decreased from $479 million as of December 31, 2023.

In the first quarter, net cash flow from operations fell to $94 million from $137.3 million a year ago.

Capital deployment

During the first quarter, Western Union rewarded its shareholders with dividends worth between $230 million and $80 million and share repurchases worth $150 million.

Guidelines 2024

The company now expects 2024 adjusted revenues of $4.150 billion to $4.225 billion, up from previous estimates of $4.1 billion to $4.2 billion but still down from $4.4 billion dollars in 2023. It also expects that in 2024, Iraq will generate revenues at the upper end of the established range of $50-100 million.

Adjusted EPS is expected to be in the range of $1.70-$1.80 in 2024, compared to prior guidance of $1.65-$1.75 versus a reported $1.74 per share in 2023. The company expects growth rates to remain subdued in the second quarter due to benefits received from Iraq last year.

Adjusted operating margin is expected to continue to be in the range of 19% to 21%. In 2023, this rate was 19.6%.

How have estimates changed since then?

Over the past month, investors have seen an upward trend in new estimates.

VGM results

Western Union currently has an average Growth Score of C, although it lags slightly behind its Momentum Score of D. However, the stock is rated A for Value, putting it in the top 20% of stocks for this investment strategy.

Overall, the company’s Total VGM Score is A. If you’re not focused on one strategy, this score should interest you.

Perspectives

Estimates for this company generally show an upward trend, and the scale of these corrections looks promising. It’s no surprise that Western Union has a Zacks Rank #2 (Buy). We expect an above-average rate of return on shares in the coming months.

Industry player performance

Western Union is part of the Zacks Financial Transaction Services industry. Over the past month, shares of Equifax ( EFX ) in the same industry have gained 4.8%. More than a month ago, the company published its results for the quarter ended March 2024.

In the most recent quarter, Equifax reported revenue of $1.39 billion, representing a year-over-year change of +6.7%. EPS of $1.50 in the same period compared to $1.43 a year ago.

For the current quarter, Equifax is expected to report earnings per share of $1.74, representing a +1.8% change from the prior-year quarter. The Zacks Consensus Estimate has changed +0.1% over the past 30 days.

Equifax carries a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Rating of C.

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