WU Western Union Company

MoneyGram International Inc. (MGI) reported fourth-quarter 2011 earnings per share of 4 cents, significantly lower than the Zacks Consensus Estimate of 17 cents but notably higher than the loss of $1.86 in the year-ago quarter. However, operating income plunged 24.6% year over year to $36.2 million.

Meanwhile, reported net income available to common shareholders improved to $3.1 million from a net loss of $19.4 million in the year-ago quarter. Excluding preferred dividend payouts, the company had reported net income of $16.2 million in the year-ago quarter.

Bottom line results in the reported quarter included debt extinguishment loss of $32.3 million or 28 cents per share, stock-based compensation costs of $4.1 million and restructuring and reorganization costs of $6.2 million.

Total operating expenses climbed 11.9% year over year to $285.6 million. However, interest expense decreased by about $1.2 million from the prior year to $20.4 million as a result of continued delevering activities and the refinancing initiated in May 2011.

Higher money transfer transaction volumes and higher fees and other revenue drove the top line, while an absence of preferred dividend payouts, tax benefits and lower interest expenses helped the bottom line. However, these were mostly offset by lower investment income along with higher operating and other expenses.

MoneyGram’s total revenue for the quarter was $321.8 million, up 6.1% from the year-ago period, but lagged the Zacks Consensus Estimate of $325 million. While fee and other revenue climbed 6.9% year over year to $318.8 million, investment revenue plummeted 39.2% to $3.1 million. 

Segment Results

In the Global Funds Transfer segment, MoneyGram’s revenue rose 8.5% year over year to $300.2 million. Money transfer transaction volume increased 13%, while money transfer fee and other revenue, even on a constant currency basis, grew 11% to $273.3 million from the prior-year period.

Besides, global agent locations reached 257,000, an increase of 18% over the prior-year quarter. However, bill payment transaction volume dipped 9% year over year, whereas, fee and other revenue declined 12% to $26.7 million from the prior-year quarter. Operating margin slipped to 11.1% from 16.0% in the year-ago quarter, although adjusted operating margin improved to 14.0% from 11.9% in the year-ago quarter.

Total money transfer transactions originating outside the U.S. escalated 14% from the prior-year quarter. Transaction volume to Mexico increased 15% year over year, significantly improving for the ninth consecutive quarter. Besides, MoneyGram’s transactions originating in the U.S. increased 15% year over year, while U.S. outbound transaction growth increased 10% over the prior-year period.

In the Financial Paper Products segment, MoneyGram’s total revenue declined 18% year over year to $21.3 million, reflecting reduced investment, money order and official check revenues. As a result, adjusted operating margin plunged to 33.3% from 36.1% in the year-ago quarter.

Full-Year 2011 Highlights

For full year 2011, MoneyGram reported net loss available to common shareholders of $438.8 million or $9.03 per share against a loss of $91.2 million or $8.77 per share in 2010. The higher losses also lagged the Zacks Consensus Estimate of earnings of 93 cents per share.

Total revenue increased 6.9% year over year to $1.24 million in 2011, marginally lower than the Zacks Consensus Estimate of $1.25 billion. Total operating expenses increased 9.6% year over year to $1.11 billion.

Liquidity

As of December 31, 2011, MoneyGram had cash and cash equivalents of $2.57 billion, net receivables of $1.22 billion and available-for-sale investments of $102.8 million. The company ended 2011 with $814.6 million of outstanding debt, while assets in excess of payment service obligations of $211.7 million.

During the reported quarter, MoneyGram reduced its debt by $175 million by partially redeeming its 13.25% senior secured second lien notes due in 2018, whose principal amount was $175 million, at a redemption price of 113.25%. These notes were held by affiliates of Goldman Sachs Group Inc. (GS).

MoneyGram redeemed the debt by squeezing out its cash and $150 million from its borrowings under its new incremental credit facility, provided by a syndicate of lenders.

During the second quarter of 2011, MoneyGram closed its new senior secured credit facility, upon the successful closure of the recapitalization. The new senior secured credit facility was worth $540 million and consisted of a $150 million five-year revolver and a $390 million, 6.5-year term loan B. The new term loan bears interest at LIBOR plus 3.25% (with a LIBOR floor of 1.25%) and extends the senior debt maturities to 2017 from 2013.

Guidance

For 2012, management expects total revenue growth of 7–9%, while adjusted EBITDA growth of 9–11%. This is consistent with the company’s long-term goals.

Business Update

Yesterday, MoneyGram announced an agreement with Banco Rendimento in Brazil to enable cash-to-account for all banks in Brazil. Additionally, during the reported quarter, the company launched the PO Bulgaria network and introduced its cash-to-account service offerings with ICBC in China and VTB bank in Ukraine. MoneyGram also expanded its new currency flow by including remittances in Malaysian Ringgitt and multi-currency receives in China.

The company also broadened its network by adding about 4,000 locations in the Russian Federation, Eastern Europe and the CIS including Ochadbank, EcoslamikBank, Fonobank and Bank Rushdi along with Unibank.

MoneyGram also added about 2,000 additional locations in Latin America including BTS, Scotiabank and Farmacias Esquivar, while another 1,000 locations were added in Africa through Wema Bank, BIMAO, and United Bank of Africa. Meanwhile, the company brought the total network to over 45,000 locations in the Indian sub-continent by adding 1,000 locations in the region.

Peer Take

MoneyGram’s peer Western Union Co. (WU) is slated to release its fourth-quarter 2011 results after the market closes on February 7, 2012.

MoneyGram carries a Zacks #2 Rank, which translates into a Buy recommendation over the short term. Additionally, over the medium-to-long term, we suggest the investors to maintain a Neutral position.

 
GOLDMAN SACHS (GS): Free Stock Analysis Report
 
MONEYGRAM INTL (MGI): Free Stock Analysis Report
 
WESTERN UNION (WU): Free Stock Analysis Report
 
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