The Western Union Company today reported financial results for the 2013 second quarter. The Company also affirmed its full year financial outlook provided on April 30, 2013.
"The strategy we laid out at the beginning of the year is working," said President and Chief Executive Officer Hikmet Ersek. "We have confidence in the strength of our business model, and I am pleased with the second quarter results. Business trends improved, and we continued to make good progress toward our 2013 strategies to strengthen consumer money transfer, increase customers and usage in business-to-business, and generate and deploy strong cash flow for our shareholders."
Ersek added, "Consumer money transfer transaction growth rates accelerated, with the Western Union brand increasing 7%, driven by strategic pricing investments and strong performance in electronic channels. Business Solutions delivered another quarter of steady growth, and year-to-date we have returned over $450 million to shareholders through dividends and share repurchases. We affirmed our financial outlook for the full year, and believe we are on target to return to revenue and profit growth in 2014."
As expected, second quarter revenues declined 3% compared to the prior year, or 2% on a constant currency basis, primarily due to pricing investments in the Consumer-to-Consumer (C2C) segment. C2C revenues declined 4%, or 3% constant currency, including a negative 1% impact from the Vigo and Orlandi Valuta brands.
C2C pricing investments in key corridors are meeting the Company's transaction objectives and contributing to the second quarter acceleration in transaction growth compared to the first quarter. Western Union branded C2C transactions increased 7% in the second quarter, compared to a 2% increase in the first quarter. Total C2C transactions increased 3% in the second quarter, compared to a 2% decline in the first quarter. Total transaction growth continued to be negatively impacted by compliance related changes, including actions implemented in the third quarter of 2012 which affected the Vigo and Orlandi Valuta brands.
Consumer-to-Business (C2B) revenues increased 2%, or 7% constant currency, and Western Union Business Solutions revenues increased 6%, or 8% constant currency.
GAAP operating margin was 20.0%, which compares to 24.3% in the second quarter of 2012. Earnings per share of $0.36 compares to $0.44 in the prior year period. As previously disclosed, the Company expects 2013 to be a transitional year as it implements key strategic actions, with a return to profit and revenue growth expected in 2014.
Progress on 2013 Key Strategies
Strengthen consumer money transfer
The pricing investments intended to regain customer momentum are driving increased transaction volumes and usage. C2C transactions increased 17% in the second quarter in the corridors in which pricing investments had been implemented prior to the beginning of the quarter. Excluding digital, C2C transactions in these priced corridors increased 11%. By the end of the quarter substantially all of the planned pricing investments for the year had been implemented.
Pricing investments in Mexico are delivering strong results. Western Union branded transactions in Mexico increased 22% in the second quarter, which compares to 9% growth in the first quarter.
Electronic channels continued to expand, with revenue growth of 26% in the quarter. Westernunion.com online money transfer transactions increased 68%, and transactions from account based money transfer through banks increased 51%.
The Company continues to add new channel options for consumers, including direct-to-bank transfer services to India, which were initiated in July. These services are available from the U.S. and the U.K. through both westernunion.com and participating agent locations. Western Union money transfer services are also now available at approximately 115,000 ATMs around the world.
Increase customers and usage in business-to-business
Western Union Business Solutions delivered a second consecutive quarter of solid growth, as revenue increased 8% constant currency compared to the prior year quarter. Strategic progress in the quarter included the launch of an international payments service for small and medium sized businesses that utilize the online MasterCard Business Network, expansion of payments services in India and Japan, and the initiation of business-to-business offerings in a 32nd country, Colombia.
Generate and deploy strong cash flow for shareholders
Year-to-date cash flow from operating activities totaled $478 million. The Company returned $194 million to shareholders in the quarter, consisting of $125 million of share repurchases and $69 million of dividends, and has returned $454 million year-to-date through June. In July, the Western Union board of directors declared a quarterly cash dividend of $0.125 per common share, payable September 30, 2013 to stockholders of record at the close of business on September 16, 2013. Full year share repurchases and dividends are expected to total approximately $700 million, which represents approximately 7% of current market capitalization.
2013 Full Year Outlook
The Company affirms its full year outlook for 2013 provided on April 30, 2013:
Revenue and C2C Transactions
- Low single digit constant currency revenue declines
- Consumer money transfer pricing investments of approximately $300 million, or 5% of total Company revenue, are reflected in the outlook
- Mid to high single digit Western Union brand C2C transaction increases
- Overall C2C transaction growth approximately 2 percentage points lower than the Western Union brand due to declines from Vigo and Orlandi Valuta resulting from compliance related actions
- GAAP operating margin of approximately 20%
- EBITDA margin of approximately 24.5%
- Effective tax rate of approximately 15%
Earnings per Share
- GAAP EPS in a range of $1.33 to $1.43
- Cash flow from operating activities of approximately $900 million, or approximately $1 billion excluding anticipated final tax payments relating to the agreement announced with the U.S. Internal Revenue Service in December 2011. Approximately $100 million of tax payments related to the agreement are included in the 2013 cash flow outlook, although it is possible some of the payments may not occur until 2014.