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Western Union Q4 net income slides

03 February 2010  |  2756 views  |  0 Source: Western Union

The Western Union Company (NYSE: WU) today reported financial results for the 2009 fourth quarter and full year.

Financial highlights for the quarter included:

  • Revenue of $1.3 billion, an increase of 2% compared to last year's fourth quarter
  • Constant currency adjusted revenue down 1%
  • GAAP and constant currency earnings per share (EPS) of $0.32; compared to fourth quarter 2008 GAAP EPS of $0.34, or $0.37 excluding restructuring expenses
  • GAAP operating income margin of 24%, compared to fourth quarter 2008 GAAP operating income margin of 26%, or 28% excluding restructuring expenses
  • Domestic money transfer business returned to positive transaction growth

Financial highlights for the full year included:

  • Revenue of $5.1 billion, a decrease of 4% compared to 2008
  • Constant currency adjusted revenue down 1%
  • GAAP EPS of $1.21, or EPS of $1.29 excluding the third quarter Arizona and multi-state settlement accrual (the settlement accrual); compared to 2008 GAAP EPS of $1.24, or EPS of $1.31 excluding restructuring expenses
  • GAAP operating income margin of 25%, or 27% excluding the settlement accrual, compared to 2008 GAAP operating income margin of 26%, or 27% excluding restructuring expenses
  • Cash provided by operating activities of $1.2 billion

Strategic and operational highlights from 2009:

  • Increased cross-border C2C money transfer market share from 17% in 2008 to an estimated 18% in 20091
  • Grew agent locations to more than 410,000
  • Completed the acquisition of Custom House, enabling the Company to enter the sizable international business-to-business (B2B) payments market
  • Completed the acquisition of the money transfer business of FEXCO, strengthening the Company's platform to expand retail distribution in Europe
  • Advanced bank distribution initiatives, including new alliances with U.S. Bank and Fifth Third Bank
  • Increased account-to-cash capabilities, with 12 banks now offering the service
  • Expanded westernunion.com internet money transfer to 18 countries
  • Initiated pilot programs in cross border mobile money transfer and prepaid cards

Western Union President and Chief Executive Officer Christina A. Gold said, "Given the challenging global economic environment, we were pleased with our performance in 2009. We delivered on our outlook, maintained strong margins, gained market share, and generated substantial cash flow, demonstrating the stability of our business model. We took an important step in repositioning the domestic money transfer business, which produced five percent transaction growth in the fourth quarter. We also made solid progress on our electronic channel and business-to-business payments initiatives, positioning us well for the future."

(1) Aite Group, LLC: "Money Transfers: Riding the Wave," April 2009, and Western Union estimates

Consolidated Results

In the fourth quarter, revenue was $1.3 billion, an increase of 2% from the comparable period in 2008, or down 1% on a constant currency basis. Fourth quarter operating income margin was 24%. As expected, operating income margins were impacted by Custom House and FEXCO acquisition related costs, U.S. domestic pricing reductions and marketing promotions, the assumption of the retail money order investment portfolio, and other expenses. Operating income margin in the fourth quarter of 2008 was 26%, or 28% excluding restructuring expenses.

GAAP and constant currency EPS in the fourth quarter of 2009 were $0.32. GAAP EPS in the fourth quarter of 2008 was $0.34, or $0.37 excluding restructuring expenses.

For the full year, revenue was $5.1 billion, down 4% from 2008, or down 1% on a constant currency basis. Full year operating income margin was 25%, or 27% excluding the settlement accrual, which compared to 2008 operating income margin of 26%, or 27% excluding restructuring expenses.

Full year 2009 GAAP EPS was $1.21, or $1.29 excluding the settlement accrual. On a constant currency basis EPS was $0.01 lower. GAAP EPS in 2008 was $1.24, or $1.31 excluding restructuring expenses.

Custom House, which was acquired in September 2009, added $23 million of revenue, but incurred a $5 million operating loss in the fourth quarter. For the full year, Custom House added $31 million of revenue and incurred a $12 million operating loss.

Capital Deployment & Liquidity

Western Union's full year cash flow from operations was $1.2 billion and capital expenditures were $99 million. In 2009, the Company repurchased 24.8 million of its shares for $400 million, at an average price of $16.10 per share, and paid $41 million in dividends.

In December, 2009, the Company increased its dividend from $0.04 annually to $0.06 quarterly, and announced a new $1 billion, 3-year share repurchase authorization.

Cash on hand at year-end was $1.7 billion and total outstanding debt was $3.0 billion. The nearest-dated debt maturity is $1.0 billion due in November of 2011. The Company has a commercial paper program fully backed by a $1.5 billion revolving credit facility that expires in 2012. At year-end, there was no commercial paper outstanding and the credit facility was fully available.

Consumer-to-Consumer (C2C)

Fourth Quarter 2009

The consumer-to-consumer segment represented 85% of Western Union's revenue at $1.1 billion in the fourth quarter, an increase of 2% from the prior year or a decrease of 2% constant currency adjusted. Operating income was down 9% and operating income margin was 26%, which compared to an operating income margin of 29% in the fourth quarter of 2008.

Western Union processed 51 million C2C transactions, a 5% increase over the fourth quarter of 2008. In addition, the Company moved $17.1 billion of cross-border principal during the fourth quarter of 2009, an increase of 3%, or a decrease of 1% constant currency adjusted, compared to the same period in 2008.

For the international portion of C2C, revenue increased 6%, or 2% constant currency adjusted, on transaction growth of 7%. Revenue from the subset of the international business, those transactions that originate outside the United States, increased 8%, or 3% constant currency adjusted, on transaction growth of 9% during the quarter.

The Europe, Middle East, Africa and South Asia (EMEASA) region, which represented 46% of Western Union revenue, increased revenue 6% and transactions 8% compared to last year's fourth quarter. Transaction growth rates relative to the third quarter improved in Western Europe, while the Gulf States softened significantly. The slowdown in money transfers from the Gulf States also impacted India, which recorded revenue growth of 6% and transaction growth of 8% in the quarter.

The Americas region, which represented 31% of Western Union revenue, reported a revenue decline of 7% compared to last year's fourth quarter, while transactions were flat. These trends improved from the third quarter of 2009. Holiday promotional programs and domestic money transfer repricing in the U.S. drove the transaction improvement, as domestic transactions increased 5% in the quarter. Revenue in the domestic business declined 20% in the quarter.

The U.S. outbound business, which is the largest component of the Americas region, had slightly higher transaction growth relative to the third quarter. Improved transaction growth was driven by strength in the Latin America, Caribbean and Asia Pacific corridors. The Mexico business, which was 5% of Western Union revenue in the quarter, had a revenue decline of 10% and a transaction decline of 12%. Fourth quarter Mexico results moderated from larger declines in both revenue and transactions experienced in the prior two quarters.

The Asia Pacific (APAC) region, which represented 8% of Western Union revenue, increased revenue by 14% on transaction growth of 13% during the fourth quarter. In China, the Company's marketing and distribution strategies led to a revenue increase of 22% and transaction growth of 8% in the quarter.

Full Year 2009

The consumer-to-consumer segment represented 85% of Western Union's revenue at $4.3 billion, a decrease of 4% from 2008 or a decrease of 2% constant currency adjusted. Operating income was down 4% and operating income margin was 27%, which compared to an operating income margin of 27% in 2008. The settlement accrual is not included in segment results. Western Union handled 196 million C2C transactions in 2009, a 4% increase over 2008.

For the international portion of C2C, revenue declined 1%, or increased 1% constant currency adjusted, on transaction growth of 8%. Revenue from the subset of the international business, those transactions that originate outside the United States, declined 1%, or increased 3% constant currency adjusted, on transaction growth of 11% during the year.

The EMEASA region, which represented 45% of Western Union revenue, reported a revenue decline of 1% and transaction growth of 10% compared to 2008. India revenue grew 11% and transactions increased 22% for the year. Operating margin for EMEASA was 28% in both 2009 and 2008.

The Americas region, which represented 32% of Western Union revenue, reported a revenue decline of 9% and a transaction decrease of 3% for the year. In the domestic money transfer business, revenue declined 14% and transactions declined 5%. Mexico, which was 6% of Western Union revenue for the year, had a revenue decline of 15% and a transaction decline of 12%. Operating margin for the Americas region was 26%, which compared to 27% in 2008.

The APAC region, which represented 8% of Western Union revenue, increased revenue by 5% on transaction growth of 18% during the year. China revenue increased 1% and transactions increased 4% compared to 2008. Operating margin for APAC was 27%, which compared to 25% in 2008.

Global Business Payments

Fourth Quarter 2009

The Global Business Payments segment represented 14% of Western Union's revenue in the quarter. Revenue was $182 million, an increase of 4% compared to the same period in 2008. Revenue declined 9% excluding Custom House. Operating income margin was 20%, or 26% excluding Custom House, compared to 27% in the fourth quarter of the prior year.

Full Year 2009

The Global Business Payments segment represented 14% of Western Union's revenue for the year. Revenue was $692 million, a decrease of 4% compared to 2008. Revenue declined 8% excluding Custom House. Operating income margin was 25%, or 27% excluding Custom House, compared to 28% in 2008.

The acquisition of Custom House advanced an important component of the Company's strategy to expand the product portfolio and geographic reach of the Global Business Payments segment. Custom House offers a simplified process for small-to-medium enterprises (SMEs) making cross-border business-to-business foreign currency payments. Western Union estimates that the SME cross-border payments market generates global revenue at least as great as the consumer-to-consumer money transfer market.

2010 Outlook

The Company expects a modest recovery in the global remittance market in 2010. Global economies are expected to remain challenging, and unemployment rates in major send markets remain high. The latest World Bank forecast in November, 2009 projected a 1% increase in global cross border remittance flows in 2010. Although many markets have stabilized and some are beginning to improve, significantly lower growth from the Gulf States is anticipated.

Western Union's outlook for 2010 projects continued C2C market share gains, improvement in C2C transaction and revenue trends compared to 2009, an expansion of B2B, and continued softness in U.S. bill payments. The Company provides the following revenue outlook:

* GAAP revenue in a range of -1% to +2%
* Constant currency revenue growth 1% lower than GAAP

The Company is committed to investing in long-term profitable growth opportunities in both C2C and Global Business Payments. In total, the Company expects to invest over $50 million of operating expenses in 2010 related to the Payment Services Directive, electronic channels, and Custom House expansion. In 2009, the Company invested $25 million in these initiatives.

Margins in the C2C business are expected to expand in 2010, including the impact of investments in key initiatives. Global Business Payments margins are expected to decline as a result of B2B expansion investments and acquisition related costs, and softness in the U.S. bill payment business.

The Company anticipates the combination of increased margins in the C2C business and declines in Global Business Payments to result in a consolidated margin of approximately 26%.

The Company expects GAAP EPS of $1.29 to $1.34, and currently does not anticipate currency to impact EPS.

The Company forecasts GAAP cash flow provided from operating activities of $800 million to $900 million in 2010. Cash flow includes the anticipated payment of the $71 million settlement accrual, and a $250 million refundable tax deposit with the Internal Revenue Service.

Christina Gold commented, "There are still global challenges in 2010, but we have confidence in our business model and strategies. The long term secular trends for migration and global money transfer growth are in place, and our brand, distribution network, compliance expertise, and financial strength position us well to grow our business as the market improves."

Gold concluded, "Our key growth strategies focus on extending our leadership position in cash money transfer, developing electronic channels, and expanding our Custom House B2B payments business. We are excited about the future, and see great opportunities for growth ahead while we continue to generate substantial free cash flow for our shareholders. "

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