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Western Union Q3 Results Top View, But Stock Plunge 14% On Compliance Costs

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10/29/2013 10:22 PM ET

Money transfer and payment services provider Western Union Co. (WU: Quote) reported Tuesday a profit for the third quarter that declined 20 percent from last year, hurt by a significant drop in margins and revenue decline amid lower transaction fees. However, both earnings per share and quarterly revenues topped analysts' expectations. The company also raised its earnings guidance for the full-year 2013, while maintaining annual revenue forecast.

Meanwhile, the company's stock plummeted 14 percent in expended trading after it reported an increase in compliance costs, and announced plans to significantly increase investments in enhancing compliance and regulatory programs.

The company had already stated earlier that it expects 2013 to be a transitional year as it implements key strategic actions, with a return to profit and revenue growth expected in 2014.

"I am pleased with the progress we made in the third quarter. The strategies we implemented to strengthen consumer money transfer are driving positive results," President and CEO Hikmet Ersek said in a statement.

The Englewood, Colorado-based company reported net income of $214.4 million or $0.39 per share for the third quarter, down from $269.5 million or $0.45 per share in the prior-year quarter.

On average, 25 analysts polled by Thomson Reuters expected the company to report earnings of $0.35 per share for the quarter. Analysts' estimates typically exclude special items.

Western Union's global consolidated revenues for the quarter decreased 1 percent to $1.41 billion from $1.42 billion in the same quarter last year, but topped twenty-five Wall Street analysts' consensus estimate of $1.40 billion by a whisker. Revenues remained flat on a constant currency basis.

Transaction fees for the quarter declined 2 percent to $1.03 billion, while foreign exchange revenues increased 3 percent to $348 million from last year. Other revenues were up 2 percent year-over-year to $31 million.

Western Union's consumer-to-consumer segment or C2C, revenues declined 2 percent or 1 percent in constant currency, to $1.13 billion, making up 80 percent of total revenues. However, total C2C transactions increased 9 percent to 62.45 million, with Western Union branded C2C transactions growing 10 percent.

Consumer-to-Business (C2B) revenues increased 3 percent or 9 percent in constant currency, to $152 million, being 11 percent of total revenues, and business solutions revenues grew 6 percent or 10 percent in constant currency, to $102 million, being 7 percent of total revenues.

The company noted that pricing investments intended to regain customer momentum continued to drive increased transaction volumes and usage.

The company added that it produced its highest quarterly consumer-to-consumer transaction growth rate in three years. Electronic channels delivered robust growth, and now represent 5 percent of total revenues.

Operating margin for the quarter contracted 470 basis points to 21.0 percent from last year's 25.7 percent, primarily due to higher compliance costs, and pricing investments.

Looking ahead to fiscal 2013, the company raised its earnings guidance to a range of $1.38 to $1.43 per share from the prior forecast of $1.33 to $1.43 per share, but still projects low-single-digit constant currency revenue decline. Street is currently looking for full-year 2013 earnings of $1.43 per share on revenues of $5.54 billion.

"We are on track with our financial outlook for the year, and have narrowed our earnings per share outlook to the higher end of our previous range," Ersek added.

WU closed Tuesday's regular trading session at $19.24, down $0.06 or 0.31% on a volume of 6.87 million shares. The stock plummeted a further $2.69 or 13.98% in after-hours trading.

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by RTT Staff Writer

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