Western Union Earnings: Results Are Still Weak, but Some Positive Signs

Western Union’s WU first-quarter results were not impressive in an absolute sense, but contained some signs that the company may be working through its recent issues and heading toward stabilization. Overall revenue was down 10% year over year on a reported basis, but only 1% excluding currency effects and divestitures, as an ongoing decline in the core money transfer business was partially offset by growth in other businesses. We will maintain our $18 fair value estimate and wide moat rating.

Revenue for the core money transfer segment was down 5% year over year on a constant currency basis. Transactions declined 6% year over year. The exit from Russia and Belarus negatively affected revenue and transaction growth by 3 and 6 percentage points, respectively. While the company is still seeing declines on an underlying basis, the rate of decline narrowed sequentially.

We see the digital channel as being of particular importance to Western Union’s competitive position given the market shift in this direction, and recent weakness in this channel has been concerning. To that end, the company’s effort to reduce pricing seemed to have their desired effect in the quarter, with year-over-year transaction growth accelerating to 7%. But with revenue still down 6% year over year on a constant currency basis, Western Union still has a ways to go to stabilize this channel.

Adjusted operating margins declined to 20.5% from 21.8% last year, due to the pressure on revenue and management’s investments to stabilize the business. However, margins improved sequentially and the level this quarter is toward the high end of expectations for the full year.