Source: Western Union
The Western Union Company (NYSE:WU) today reported financial results for the 2011 second quarter.
Financial highlights for the quarter included:
* Revenue of $1.4 billion, an increase of 7% compared to last year's second quarter
* Constant currency adjusted revenue increase of 5%
* Operating margin of 25.7%, or 26.3% excluding restructuring expenses, compared to 24.4%, or 27.1% excluding restructuring expenses, in the prior year. Current quarter includes $6 million of costs related to the Travelex Global Business Payments acquisition
* Gain of $0.03 per share in Other income related to the Company's previous 30% ownership position in Angelo Costa S.r.l.
* EPS of $0.41, or $0.42 excluding restructuring expenses, compared to $0.33 in the prior year, or $0.36 in the prior year excluding restructuring expenses
* Year-to-date cash provided by operating activities of $506 million
* Restructuring expenses of $9 million, or $6 million after-tax, related to organizational changes and other actions as previously disclosed by the Company
Additional highlights for the quarter included:
* Consumer-to-consumer (C2C) revenue increase of 8% reported and 5% constant currency on transaction growth of 6%; C2C represented 84% of Company revenues
o Europe, Middle East, Africa and South Asia (EMEASA) region revenue increase of 8% on transaction growth of 4%
o Americas region revenue increase of 5% on transaction growth of 7%
o Asia Pacific (APAC) region revenue increase of 16% on transaction growth of 12%
o C2C operating margin of 28.6% compared to 29.1% in prior year
* Global Business Payments revenue increase of 4%
o Bill payments revenue increase of 2%
o Western Union Business Solutions (WUBS) revenue increase of 14%
o Global Business Payments operating margin of 19.9% compared to 18.9% in the prior year
* Electronic channels revenue increase of over 35%. Electronic channels, which include westernunion.com, account based money transfer, and mobile money transfer, represents 3% of total Company revenue fney transfer, and mobile money transfer, represents 3% of total Company revenue for the quarter
* Prepaid cards in force of 1.1 million, with retail distribution available at approximately 12,000 U.S. locations
* Growth in agent locations to 470,000
* Agreement to acquire Travelex Global Business Payments (TGBP), a leading specialist provider of international business payments, which enhances the Company's position in one of its key strategic growth areas, business-to-business cross border payments
* Agreement to acquire the remaining 70 percent of Finint S.r.l., a leading money transfer network agent in Europe, which provides the Company more direct access to agent locations and scale benefits on existing European infrastructure
* Share repurchases of $135 million (6.6 million shares at an average price of $20.35 per share) and dividends paid of $50 million in the quarter. Quarterly dividend increased 14%, to $0.08 per share, in May
Additional key statistics for the quarter and historical trends can be found in the supplemental table included with this press release.
Western Union President and Chief Executive Officer Hikmet Ersek commented, "We continue to see solid trends in our business, and I am pleased we are able to raise our full year outlook for both revenue and earnings per share. The consumer-to-consumer business is growing in each of our regions, and our bill payments revenue growth turned positive in the quarter for the first time since 2008. We also made further strides in electronic channels, which now represent 3% of total Company revenue."
Ersek continued, "I am very excited about the recent announcement regarding the acquisition of Travelex Global Business Payments, which will give us immediate scale, further reach, and added capabilities in the business-to-business cross border payments market. Our existing b-to-b business, Western Union Business Solutions, is on track for good growth this year, and we are expanding distribution through our money transfer agent network in several countries. The combination of Travelex Global Business Payments and Western Union Business Solutions will give us a strong foundation for long-term growth in international business payments."
Ersek added, "We continue to deploy the Company's strong cash flow against our priorities of investing in the business, making strategic acquisitions to accelerate growth and diversify our sources of revenue, and returning funds to shareholders through both share repurchase and dividends, while maintaining a strong balance sheet. In addition to the Travelex Global Business Payments acquisition, which is expected to close late this year, we completed the purchase of one of our leading money transfer network agents in Europe, Angelo Costa, in April, and expect to complete the Finint acquisition later this year. We have also been active in the first half of the year in returning funds to shareholders. In May, we raised our dividend by 14%, and year-to-date through June we have repurchased $660 million of our shares."
The Company has increased its full year 2011 revenue and EPS financial outlook and now expects the following full year 2011 results:
* Constant currency revenue growth in the range of +4% to +5% (previously +3% to +4%)
* GAAP revenue growth in the range of +5% to +6% (previously similar to constant currency)
The updated 2011 outlook does not include any revenue impact related to the TGBP acquisition, which is expected to close in late 2011.
* GAAP EPS of $1.48 to $1.53 (previously $1.41 to $1.46)
* EPS excluding restructuring charges of $1.53 to $1.58 (previously $1.47 to $1.52)
The 2011 projected GAAP EPS range has increased by $0.07 compared to the April 26, 2011 outlook, and the EPS range excluding restructuring expenses has increased by $0.06. Restructuring expenses in 2011 are expected to be slightly lower than previously projected, at approximately $45 million. Excluding restructuring expenses, the primary drivers of the $0.06 increase in EPS relate to:
* Positive $0.02 EPS impact from the increase in constant currency revenue
* Positive $0.01 EPS impact from an additional 1% increase in GAAP revenue from currency translation net of the offset from hedges
* Positive $0.01 EPS from acquisition impacts not included in the previous outlook. This includes an anticipated second half gain on the previous 30% ownership position in Finint S.r.l. (positive $0.02) and higher than expected benefit from the Angelo Costa S.r.l. acquisition (positive $0.01 due to the strength of the Euro and integration expense timing), partially offset by an estimated $15 million of deal costs related to the planned acquisition of TGBP (negative $0.02 impact)
* Positive $0.02 EPS impact from a 1% reduction in the estimated tax rate range
The Company's operating margin is now projected at a range of 25% to 25.5%, or a range of 26% to 26.5% excluding restructuring charges. The change in operating margin from the April outlook is due to the deal costs related to the TGBP acquisition and the impact of foreign exchange. On a constant currency basis, excluding restructuring charges, the Company projects a full year operating margin of 26.5% to 27%, including the negative impact of TGBP deal costs. This compares to an operating margin of 26.2% in 2010, excluding restructuring charges.
Operating Cash Flow
The Company expects GAAP cash flows from operating activities to be at the lower end of its previous range of $1.2 billion to $1.3 billion.
Western Union presents a number of non-GAAP measurements because management believes that these metrics provide meaningful supplemental information in addition to the GAAP metrics and provide comparability and consistency to prior periods. These non-GAAP measurements include revenue change constant currency adjusted, operating income margin and earnings per share excluding restructuring expenses, consumer-to-consumer segment revenue change constant currency adjusted, 2011 revenue outlook constant currency adjusted, 2011 operating income margin outlook restructuring and constant currency adjusted, 2011 earnings per share outlook excluding restructuring expenses, and additional measures found in the supplemental schedule included with this press release.
Reconciliations of non-GAAP to comparable GAAP measures are available in the accompanying schedules and in the "Investor Relations" section of the Company's website at www.westernunion.com.
Western Union incurred $9 million in restructuring expenses in the second quarter from previously announced actions. Approximately $0.5 million was included in cost of services and $8.4 million was included in selling, general, and administrative expense. The Company incurred $35 million in restructuring expenses in the second quarter of 2010.
For the 2010 full year, Western Union incurred $60 million in restructuring expenses from previously announced actions. Approximately $15 million was included in cost of services and $45 million was included in selling, general, and administrative expense.
The Company expects to record a total of approximately $45 million of restructuring charges in 2011. The restructuring charges relate primarily to organizational changes designed to simplify business processes, move decision-making closer to the marketplace, and create operating efficiencies. The Company realized pre-tax savings from the initiatives of $8 million in 2010, and expects approximately $50 million of savings in 2011, and $70 million annualized beginning in 2012. Restructuring expenses are not reflected in segment operating results.
Restructuring expenses include expenses related to severance, outplacement and other related benefits; facility closure and migration of IT infrastructure; and other expenses related to relocation of various operations to new or existing Company facilities and third-party providers, including hiring, training, relocation, travel, and professional fees. Also included in the facility closure expenses are non-cash expenses related to fixed asset and leasehold improvement write-offs, and the acceleration of depreciation and amortization.
Constant currency results assume foreign revenues and expenses are translated from foreign currencies to the U.S. dollar, net of the effect of foreign currency hedges, at rates consistent with those in the prior year. Constant currency results also assume any benefit or loss caused by foreign exchange fluctuations between foreign currencies and the U.S. dollar, net of the effect of foreign currency hedges, would have been consistent with the prior year. Additionally, the measurement assumes 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.