Alternative Finances

Western Union’s Q2 Earnings Slump

This article was updated with more content from its original version.

Western Union executives have high expectations for the company’s Business Solutions unit. But in the short term, at least, the B2B operation faces issues in the foreign-exchange (FX) market that are impacting its quarterly performance.

 

The unit’s operations are designed to help companies manage their international transactions, including bill presentment and payment, as well as FX management. With low FX volatility, companies tend not to seek out FX assistance.

 

During a second-quarter earnings call with analysts, Hikmet Ersek, Western Union’s president, CEO and director, acknowledged his concerns, noting Business Solutions revenue was flat during the quarter following three consecutive quarters of double-digit constant currency growth.

 

Extremely low foreign-exchange volatility and some sales-execution challenges affected the unit’s activity, Ersek said.

 

“On the year-to-date basis through June, Business Solutions’ constant currency revenue increased 5%, which is roughly in line with global trade projections,” he said. “Although we continue to believe it is a strong long-term growth opportunity, considering the current low foreign-exchange volatility in the market, we do not believe we will reach the full-year double-digit revenue growth target for Business Solutions in 2014.”

Western Union plans  to continue to increase the unit’s integrated product offerings and expand the customer base to drive business in what Ersek dubbed a “strong, long-term growth market,” Ersek said.

Also during the call, Raj Agrawal, Western Union executive vice president and chief operating officer, said he believes Business Solutions will expand margins over the next few quarters because it needs to get the revenue leverage. “And we didn’t get revenue growth in the quarter, but as we get revenue leverage, we will be able to expand margins in that business, as we can leverage the infrastructure that we have already put in place,” he said.  “So I would look for greater margins over the next few years in that business.”

In Agrawal’s view, Business Solutions customers tend to change their behavior with Western Union, and that affects sales execution. Moreover, the company’s business is made up of hedging, foreign exchange, risk management, plus the other payment transactions that happen, which also affects business dealings, especially when dealing with foreign exchange rates.

“So when you feel more comfortable with a transaction, or when you feel more comfortable with where currencies are, you’re less likely to move off the sidelines and do a transaction now,” he said. “Ultimately, over the course of a year or over two years, you will actually do the transaction.”

So, it is really a short-term issue, Agrawal said. “Over the course of a year, two years, we would not expect volatility to have that much of an impact of the business,” he said. “It’s really in a very short period of time when you have such a dramatic move in the volatility level, and we do see that impact.”

As a company, second-quarter earnings dipped 2 percent. Higher costs were one reason for the decline, particularly as the company pushes to expand its consumer money transfer business. Walmart’s money transfer service and elevated compliance costs brought on by increased regulatory interest were also a factor in Western Union’s sluggish second quarter.

 

Profit was 36 cents a share, or $193.8 million, a fall off from $198.6 million at the end of Q2 2013. Revenue did bump up some, by1 percent to $1.41 billion, pushed by increased prices and digital growth in the consumer-to-consumer segment.

 

 

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