Western Union Q1 net income rises

Source: Western Union

The Western Union Company (NYSE: WU), a leader in the money transfer segment of global payments, today reported financial results for the first quarter.

Highlights for the quarter included:

  • Global consolidated revenue of $1.2 billion, a decrease of 5% compared to last year's first quarter; or flat constant currency adjusted
  • EPS of $0.32 up 19% compared to last year's first quarter; or up 10% excluding the $24 million pre-tax restructuring expense incurred in the first quarter of 2008
  • EPS of $0.33 constant currency adjusted
  • Operating income margin of 28%
  • Net income of $224 million up 8% compared to last year's first quarter; or up 1% excluding restructuring expense incurred in the first quarter of 2008
  • Cash provided by operating activities of $357 million

Other highlights included:

  • Important money transfer agreements for the America's "go-to-market" banking channel strategy with U.S. Bank and Fidelity National Information Service
  • Western Union in conjunction with Yodlee will offer integrated, online expedited bill payments to Fidelity National Information Services' customers
  • Closed the acquisition of the money transfer business of FEXCO
  • Grew agent locations to 379,000

Western Union President and Chief Executive Officer Christina Gold said, "We were pleased with first quarter results, particularly in light of the world's economic challenges. Global consumer-to-consumer transactions increased seven percent for the period, and in combination with cost reductions, led to strong margins. We made significant progress on our strategic agenda during the quarter, particularly our channel strategy, by signing the U.S. Bank agreement and through the FEXCO acquisition."

Consolidated Results

In the first quarter, revenue was in line with expectations at $1.2 billion, down 5% from last year's first quarter or flat constant currency adjusted. Operating income was $341 million, up 10% or up 2% excluding restructuring expense taken in the first quarter of 2008. First quarter operating income margin was 28% compared to 24% in last year's first quarter. Excluding restructuring expense, the first quarter 2008 operating margin was 26%. The first quarter 2009 margin was aided by the timing of marketing and other investments.

Earnings per share were $0.32, a 19% increase over last year's first quarter, or a 10% increase excluding restructuring expense from last year. The tax rate for the first quarter was 26.6% compared to 29.2% in the first quarter a year ago. The decrease was primarily the result of a higher proportion of foreign-derived profits, which are taxed at a lower rate compared to U.S.-derived profits, and the effect of tax efficient strategies implemented in 2008.

Capital Deployment & Liquidity

Western Union's cash flow from operations was $357 million and capital expenditures were $16 million. In the first quarter, the company repurchased approximately nine million shares for $100 million at an average price of $11.39 per share.

Cash on hand at quarter end was $1.5 billion. In the first quarter, Western Union refinanced a $500 million, 364 day bank loan maturing in December 2009 by issuing five-year notes with an interest rate of 6.5%. Total outstanding debt at quarter end was approximately $3 billion, of which $1 billion is due in 2011, $500 million is due in 2014, $1 billion is due in 2016, and the last $500 million is due in 2036.

The company has a commercial paper program that is fully backed by a $1.5 billion revolving credit facility that expires in 2012. At quarter end, there was no commercial paper outstanding and this facility was undrawn.

Consumer-to-Consumer (C2C) Results

The consumer-to-consumer segment, representing 84% of Western Union's revenue, posted revenue of $1.0 billion in the first quarter, a decrease of 5%, or a 1% increase constant currency adjusted. Operating income grew 5% on an operating income margin that improved to 29% from 26% in last year's first quarter.

C2C transactions continued to grow during the quarter as evidenced by a 7% increase. Transaction growth, as anticipated, slowed sequentially from the fourth quarter and the amount of money that consumers remitted per transaction declined 10%, or 3% constant currency adjusted, year-over-year. This resulted in lower C2C transaction fee and foreign exchange revenue. Western Union handled $15 billion in total cross-border C2C principal in the quarter, a decline of 3%, or an increase of 4% constant currency adjusted.

For the international portion of C2C, revenue declined 3%, or was up 3% constant currency adjusted, on transaction growth of 11%. Revenue from the subset of the international business, those transactions that originate outside of the United States, declined 3% or a 5% increase constant currency adjusted on transaction growth of 16% during the quarter.

The difference between revenue and transaction growth rates for C2C, particularly within the international C2C business and the international transactions that originate outside of the U.S., widened. Four factors contributed to the difference in growth rates: currency translation, geographic mix, product mix between intra and cross-border transfers, and pricing. In the first quarter, currency translation was the largest contributor to the total C2C revenue and transaction growth rate difference, totaling half of the 12 percentage point difference. The impact from geographic mix, product mix, and pricing reductions were consistent with the fourth quarter of 2008.


The Europe, Middle East, Africa and South Asia (EMEASA) region, which represents 43% of Western Union revenue, experienced a first quarter revenue decline of 4% on transaction growth of 15% compared to last year's first quarter.

Economic circumstances continue to impact growth rates in Europe. Performance of the Gulf States was strong, declining only slightly from the fourth quarter of 2008. Additionally, India's performance contributed to the region's results with revenue growth of 19% and transaction growth of 42% in the quarter.


The Americas region, which represents approximately one-third of Western Union revenue, reported a revenue decline of 7% compared to last year's first quarter while transactions decreased by 3%. Results in this region continue to be impacted by challenges related to the U.S. economy. The domestic money transfer business saw revenue decline 10% in the quarter on a transaction decline of 7%. The Mexico business, now just 6% of Western Union revenue, saw revenue decline 10% and transactions decline 9% in the quarter. The U.S. outbound business was stable compared to fourth quarter 2008.


The Asia Pacific (APAC) region, which represents 8% of Western Union revenue, delivered 3% revenue growth and 25% transaction growth compared to the first quarter of 2008. In the quarter, China revenue declined 13% on a transaction decline of 1%.

Contributing to this region's growth was the Philippines' performance which remained strong, with inbound remittance growth continuing to exceed the market growth as reported by the Central Bank of the Philippines.

Consumer-to-Business (C2B) or Payments Results

The consumer-to-business or payments segment represents 14% of Western Union's revenue. Revenue for the quarter decreased 8% from first quarter 2008 to $174 million. Operating income was down 10% with an operating margin of 29% compared to 30% in the first quarter of 2008.

This segment continues to have its revenue and margins impacted by a decline in demand for U.S. bill payment services, as many American consumers who are likely to use this service have difficulty paying bills and obtaining credit.

Western Union possesses the ability to offer same-day bill payment posting to a customer's account in the U.S. Leveraging on this capability, Western Union in conjunction with Yodlee will offer integrated, online expedited bill payments to Fidelity National Information Services' clients. This is an important step toward expanding this segment's reach into new customers and channels.

Recent Events

Western Union made significant progress in its North American "go-to-market" banking strategy by opening new distribution channels and broadening its reach to new customer segments through two important agreements. In March, Western Union entered into an agreement with U.S. Bank, the sixth largest commercial bank in the United States, to offer global money transfer service in 2,791 U.S. Bank branch offices. Last week, Western Union entered an agreement with Fidelity National Information Service (FIS) to offer global money transfer services to FIS' more than 8,500 banking institution clients throughout the United States. This agreement builds on the previously mentioned C2B offering with FIS through Yodlee. As Western Union continues to evolve its service offerings in an effort to position money transfer and other payments services to new and existing consumers, it will tap into banking channels including: Cash-to-Cash, Account-to-Cash, and Account-to-Account money transfer.

Western Union also made significant progress accelerating its C2C growth and profitability objectives in Europe by acquiring the money transfer business of FEXCO, one of its largest agents with 10,000 consumer-facing locations across the United Kingdom, Spain, Ireland, Sweden, Norway, Denmark and Finland. The acquisition will allow Western Union to work directly with retail agents, directly manage the brand and operations, and operate more cost-efficiently. Additionally, the acquisition better positions Western Union for the upcoming adoption of the Payment Services Directive throughout the European Union.

In April, the Obama Administration announced its plan to ease restrictions limiting the ability of U.S. consumers to send money to Cuba. Western Union has been providing money transfer services to Cuba since 1999 through its more than 150 agent locations in Cuba. Western Union is ideally positioned and its Cuban agent locations are fully operational and ready to support expanded money transfer services.

Key agent signings included:

  • U.S. Bank with 2,791 locations in 24 states
  • Check N' Go, 1,300 locations in 30 states
  • Check into Cash, with over 1,000 locations in the U.S.


Gold said, "We believe 2009 is a year of opportunity, one where financially strong companies and world-class brands will increase separation from their peers. In Western Union's case, we are using our financial strength to increase the pace of investments like those in the new yes! campaign, mobile, westernunion.com, intra and Payment Services Directive opportunities. We are increasing our focus on opportunities in underpenetrated markets like Asia. Finally, we are using our brand and scale to be a partner of choice with banks, thereby diversifying our channel and broadening our market opportunity. Given these initiatives, we are targeting a 27% operating margin for the full year.

"We were pleased with our first quarter performance. With one quarter complete, we reaffirm our 2009 outlook recognizing that throughout this year the economic environment remains challenging and uncertain."

The company expects constant currency revenue to be down 2% to 5%; GAAP revenue to be down 5% to 8%; constant currency EPS of $1.16 to $1.26; GAAP EPS of $1.18 to $1.28; and cash flow from operations to exceed $1.1 billion

Non-GAAP Measures

Western Union's management presents revenue declines constant currency adjusted, earnings per share and net income growth excluding 2008 restructuring expenses, earnings per share constant currency adjusted, 2009 operating income growth and 2008 margin excluding 2008 restructuring expenses, consumer-to-consumer segment revenue growth constant currency adjusted, international consumer-to-consumer revenue growth constant currency adjusted, international consumer-to-consumer excluding United States originated transactions revenue growth constant currency adjusted, consumer-to-consumer principal per transaction declines constant currency adjusted, consumer-to-consumer cross-border principal growth constant currency adjusted and 2009 revenue and earnings per share constant currency adjusted guidance which are non-GAAP measures, because management believes they provide more meaningful information.

Reconciliations of non-GAAP to comparable GAAP measures are available in the accompanying schedules and in the "Investor Relations" section of the company's web site at www.westernunion.com.


Constant currency results exclude any benefit or loss caused by foreign exchange fluctuations between foreign currencies and the U.S. dollar, net of foreign currency hedges, which would not have occurred if there had been a constant currency rate. The results also assume the impact of fluctuations in foreign currency derivatives not designated as hedges and the portion of fair value that is excluded from the measure of effectiveness for those contracts designated as hedges is consistent with the prior year.

Restructuring Expenses

In the first quarter of 2008, Western Union incurred $24 million in restructuring expenses. In that quarter, $22 million was included in cost of services and $2 million was included in selling, general and administrative expense. The restructuring expenses were not included in the operating segments results.

Restructuring expenses include expenses related to severance, outplacement and other employee-related benefits; facility closure and migration of IT infrastructure; and other expenses related to relocation of various operations to existing company facilities and third-party providers.

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