Western Union On Doubling Down On Digital In 2020

With a slight miss on earnings and revenue numbers and year-on-year declines in both areas, investors seemed a bit nervous in after-hours trading Tuesday (Feb 11) when Western Union reported its results for the final quarter of 2019. Despite the wobble in investor confidence that drove WU’s stock down about 3 percent in after-hours trading, CEO Hikmet Ersek noted overall satisfaction with the quarterly result — mainly as it related to the global money movement firm’s plans for its future evolution and development

“I’m pleased with the progress of our business in the fourth quarter, as we continued to deliver strong digital growth and solid financial results. Importantly, we began implementing a number of initiatives from our new strategy and productivity program, and we start 2020 with good momentum for achieving the 2022 targets we laid out at our September investor day,” Ersek noted.

Revenue came in at $1.31 billion, slightly behind analyst estimates of $1.32 billion and down 6.7 percent from the same time in 2019 on a  reported basis (or up by 3 percent on adjusted constant currency terms). Much of that variability, Western Union noted in its earnings call, came care of the strengthening of the U.S. dollar against Argentine peso — which negatively impacted reported revenue by approximately 2 percent during the quarter.

Earnings came in at $135.4 million or  32 cents a share, down from 48 cents a share the year prior. On adjusted earnings were 38 cents a share, down from 51 cents a share and behind analyst estimates of 43 cents a share. Those declines, according to WU, were primarily the outcomes of an increased effective tax rate, the divestiture of the Speedpay and Paymap businesses in May of 2019, and higher marketing investment compared to the prior-year period.

In other notable figures, Consumer-to-Consumer (C2C) revenues represented 86 percent of total revenue in the quarter, were flat on a reported basis.

Digital money transfer revenue showed the biggest growth, with a 24 percent increase on a reported basis, or 25 percent constant currency, in the quarter. That growth, Western Union Chief Financial Officer and Executive Vice President Raj Agrawal told Karen Webster shortly after the news went out over the wires, represents both the strength of Western Union’s brand name digital product via westerunion.com and the growing strength of its new white-label business rolled out in late 2019.

“Digital is both a branded offering for us now and happening through our growing list of white label partners, and so far, this has been a very big success for us,” Agrawal told Webster. “We have a lot more development to do there over the next year as we are really looking to expand that more broadly around the world. We really want to supersize the options out there for companies given the size and scale of assets we have all over the world.”

In WU’s earnings call, Ersek touted the company’s capabilities that include “both digital and physical money movement networks with over 550,000 locations across more than 200 countries and territories. Digital send capabilities in over 70 countries and bank account payout capabilities in over 100 markets offering across to billions of accounts.”

Other successes that Agrawal told Webster were key metrics for positioning Western Union as it takes on 2020. Those include, he noted, increasing adjusted margins and a strong growth outlook for growth in the teens, both of which were outlined as objectives for the year at the company’s annual investor day. Dividends, he noted, were also up by 13 percent.

Continuing those trends in growing revenue EPS and digital transactions, plus improved cash flow on an operating basis, he noted, was on the agenda for the year and look well within the range of achievability.  Western Union will continue monitoring what’s happening around the world, of course, simply because it is global and doesn’t have a choice. However, he noted, barring something truly extraordinary happening in 2020, WU doesn’t believe its long-term outlook on the year is at a huge risk of being disrupted.

Of particular promise in the next year, he said, are plans to continue to expand and improve its B2B business offerings.

“We’re really excited because the B2B business fits in so well with our cross-border offerings, and we want to be able to do what we do for consumers for businesses all over the world.”

Among the more exciting new frontiers WU is exploring in this vein, he told Webster, is its expanding roster of partnership with educational institutions to make paying tuition friction-free for students at their global university of choice. By putting that straight-through-processing capability in place, he notes, Western Union can drastically simplify the process and the goal is to be doing that in as many countries as it operates in today. The firm does not cover the education vertical every place it currently operates, he said, adding “there is no reason we shouldn’t have that everywhere in the world.”

However, it will, as that is the path the firm is headed down. With companies, with schools, with banks and with financial institutions (FIs), Western Union, he noted, is ready to start being a critical player moving money from anywhere to anywhere and for any entity business or consumer.

It was a theme echoed by Ersek in the earnings call, as he pointed to WU’s push to move its digital strategy forward for consumers, “including larger opportunities like the $120 billion outbound market in the Gulf States or the $25 billion outbound market in China and India. Our goal is to evolve in the world’s ultimate agnostic network for payments and cross-border money movement.”