Money transfer and bill payment services provider Western Union Co. (WU) reported Tuesday a 7% year-over-year decline in profit for the fourth quarter as the revenue growth was more than offset by a drop in margins.
Adjusted earnings per share declined 6%, but came in line with analysts' expectations. The company also provided earnings forecast for the full year 2010, below consensus estimate.
In a statement, president and chief executive officer, Christina 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."
Fourth Quarter Results
The Englewood, Colorado-based company reported net income of $223.7 million or $0.32 per share for the fourth quarter, down from the prior-year quarter's $239.6 million or $0.34 per share.
The results for the year-ago quarter included restructuring and related expenses. Excluding the charge, adjusted net income for the quarter dropped to $223.7 million or $0.32 per share from $260.9 million or $0.37 per share in the year-ago quarter.
On average, twenty five analysts polled by Thomson Reuters expected the company to report earnings of $0.32 per share for the fourth quarter. Analysts' estimates typically exclude special items.
Western Union's global consolidated revenues for the quarter increased 2% to $1.31 billion from $1.29 billion in the same quarter last year, and came in line with twenty Wall Street analysts' consensus estimate of $1.31 billion. Revenues were down 1% from last year, on a constant currency basis.
Peer Performance
Among Western Union's peers, New York-based American Express Co. (AXP) reported last month a profit for the fourth quarter that more than doubled from last year, helped by the strong performance in the U.S. Card Services division and a sharp decline in loan loss provisions. Net income was $707 million or $0.60 per share, higher than $239 million or $0.21 per share in the year-ago quarter. Total quarterly revenues, net of interest expense, edged down to $6.49 billion from $6.51 billion last year.
Another peer, Minneapolis, Minnesota-based MoneyGram International, Inc. (MGI) is scheduled to announce financial results for the fourth quarter on Thursday, February 4, 2010. Wall Street analysts are of the view that the company will report a loss of $0.20 per share for the quarter with revenue estimates of $305.83 million.
Segmental Details
Transaction fees for the quarter totaled $1.04 billion, flat with the prior-year quarter. Foreign exchange revenues grew 16% to $250.4 million from last year's $215.3 million. Commission and other revenues were down 29% year-over-year to $25.8 million.
Western Union's consumer-to-consumer segment or C2C, posted quarterly revenues of $1.11 billion, representing 85% of the company's global revenues, up 2%, or a 2% decline on constant currency. Segment operating margins dropped 320 basis points to 25.7%. Western Union's C2C transactions also increased 5% to 51.4 million from last year.
The Americas region, which represents 31% of Western Union's revenues, reported a 7% decline in C2C revenues, with transactions remaining flat with last year. The Mexico business' C2C revenue and transaction declined 10% and 12%, respectively, and contributed 5% of Western Union's global revenues.
The company's international C2C revenue was up 6%, or up 2% on constant currency, with transactions growing 7%. The Europe, Middle East, Africa and South Asia region or EMEASA, which represents 46% of the company's global revenues, witnessed C2C revenue growth of 6% on transaction increase of 8%. Western Union's Asia Pacific region or APAC, revenues grew 14%, with transactions increasing 13%, and accounted for 8% of the company's total global revenues.
Meanwhile, the company's global business payments segment, formerly consumer-to-business segment, posted quarterly revenues of $181.8 million, a 4% increase from last year. The segment contributed 14% of Western Union's total global revenues, with operating margins plunging 730 basis points to 19.6%. Global business payments transactions decreased 4% to 99.3 million from last year.
Other Metrics
Operating income for the fourth quarter declined 5% to $318.6 million from $334.3 million in the year-ago quarter, and operating margins decreased 170 basis points to 24.2% from last year's 25.9%. Excluding prior year restructuring expenses, adjusted operating margins dropped 420 basis points from 28.4%.
Total expenses for the quarter were $995.4 million, a 4% increase from $957.3 million in the same quarter last year. Total expenses include selling, general and administrative expenses of $232.5 million, up 12% from $207.9 million in the prior-year quarter, and costs of services of $762.9 million, 2% lower than $749.4 million in the prior-year quarter.
The company ended the fourth quarter with cash and cash equivalents of $1.69 billion, compared to $1.30 billion at end of the prior-year quarter. At the end of the fourth quarter, the company's total outstanding debt stood at about $3 billion.
Last month, Western Union and Travelex have agreed to offer money-transfer services in Japan after Japan's new Financial Settlement Act is implemented by June 2010. In June 2009, the government passed the Financial Settlement Act, allowing non-banks to conduct money transfer operations. Travelex is expected to become Western Union's first Agent under the new law to offer the Western Union Money TransferSM service in Japan.
In December, the company increased its cash dividend to $0.06 per share quarterly from $0.04 per share annually, and announced a new $1 billion, 3-year share repurchase authorization, effective from January 1, 2010.
Full-Year Highlights
For fiscal 2009, Western Union reported net income of $848.8 million or $1.21 per share, down from 919.0 million or $1.24 per share in the prior year.
Excluding gains and charges, adjusted net income for the year dropped to $902.7 million or $1.29 per share from $970.6 million or $1.31 per share in the previous year. Analysts expected the company to report earnings of $1.28 per share for fiscal 2009.
Western Union's global consolidated revenues for the full year decreased 4% to $5.08 billion from $5.28 billion reported last year. The Street was looking for full-year 2009 revenues of $5.08 billion. Revenues were down 1% from last year, on a constant currency basis.
Looking Ahead...
"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 added.
For fiscal 2010, the company expects GAAP earnings in a range of $1.29 to $1.34 per share, and currently does not anticipate currency to impact earnings. Street analysts currently expect earnings of $1.41 per share for the full-year 2010.
The company also anticipates full year 2010 GAAP revenue decline of 1% to 2% from last year, reflecting revenues of between $4.98 billion and $5.03 billion, and a 1% drop in constant currency revenue. Analysts currently project revenues of $5.30 billion for fiscal 2010.
Western Union's outlook for 2010 projects continued C2C market share gains, improvement in C2C transaction and revenue trends as well as expansion in margins compared to 2009. The company also anticipates expansion of B2B, and continued softness in U.S. bill payments.
The company also expects a modest recovery in the global remittance market in 2010, with the latest World Bank forecast in November, 2009 projecting a 1% increase in global cross border remittance flows. The company anticipates significantly lower growth from the Gulf States, although many markets have stabilized and some are beginning to improve.
Stock Quote
In Wednesday's regular trading session, WU is currently trading at $17.92, down $0.93 or 4.93% on a volume of 16.79 million shares. In the past 52-week period, the stock has been trading in a range of $10.05 to $20.64.
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