Western Union Earnings Fall 7 Percent

Western Union Earnings Fall 7 Percent

Published: July 24, 2007

DENVER (AP) — The Western Union Co. reported Tuesday its second-quarter profit dropped 7 percent on higher expenses. It also announced plans to offer a cell phone capable of handling money transfers and for a microlending program.

The new initiatives coupled with the earnings results lifted shares of the global money leader by more than 3.5 percent in midday trading.

Chief Executive Officer Christina Gold was pleased with the results, which she said fell within her expectations and remained consistent with full-year guidance.

Net income for the quarter was $204.5 million, or 26 cents per share, down from $218.9 million, or 29 cents per share, from the second quarter of 2006.

The latest quarter includes pretax costs of $47 million related to the company's listing on the stock market, contributing to a 12 percent increase in expenses which totaled $880.2 million.

Revenue rose 8 percent to $1.2 billion from $1.11 billion last year.

Analysts polled by Thomson Financial expected a profit of 26 cents per share on revenue of $1.22 billion.

Western Union blamed the ongoing discussion about U.S. immigration policy for a 10 percent revenue drop in its consumer-to-consumer business and a 5 percent decline in transaction volume.

In a research note, UBS (OOTC:UBSLF) (NYSE:UBS) analyst Adam Frisch said the results met expectations although revenue was a “little light” due to continued weakness in Mexico and domestic operations.

Western Union shares rose 76 cents, or 3.7 percent, to $21.46 in midday trading.

During a call with analysts, Gold outlined several products aimed at driving new business around the world, including the cell phone for money transfers that has been tested successfully in several U.S. cities.

The company is in negotiations with wireless network providers to partner on the product with an eye toward expanding the pilot program to additional cities this year and, potentially, to overseas markets.

A customer would take the phone to a Western Union agent to load in the money transfer information, which would be sent to a recipient with a cell phone who would take it to a Western Union agent to receive the money, she said.

The company has developed the capability of completing the transactions. They expect amounts of the cell-phone transfers to be about $100 or less.

“We have just been testing in the United States and we've been having some conversations in other parts of the world, so stay tuned and we'll you posted in terms of where we go next,” she said in an interview after the analyst call.

Another idea is a microlending program to serve customers worldwide. The programs typically are designed to help those with a poor — or no — credit history.

Gold said they have the capability of making loans through the company's bank and a database that shows the money transfer history of customers. They anticipate loans to range from several hundred dollars to about $1,000.

“We think it is a big opportunity for us. The real question will be in terms of the risk and also the ability to wrap this up around the globe,” she said.

Frisch said his company does not necessarily believe that the mobile phone and other remittance products will attract new customers; instead, he said, existing customers may shift to the newer products, which would have lower price points.

The company, based in suburban Englewood, said it plans to repurchase an additional $300 million to $400 million in shares in the second half of the year, beyond the $700 million remaining on a previous authorization.