Western Union 4Q Profit Surges 86% On Tax Gain; But Revenue Miss

Western Union Co. (WU), which sells money transfers and other payment services, said its profit surged 86% in the fourth quarter as transaction volume grew and the company recorded a one-time benefit from a tax agreement.

The Englewood, Colo., company posted net income of $452.3 million, or 73 cents per share, up from $242.6 million, or 37 cents per share, a year ago. Excluding the tax benefit, Western Union earned 40 cents per share, meeting analysts' estimates, according to Thomson Reuters.

However, the company's revenue grew 5% to $1.43 billion, shy of analysts' estimates for $1.44 billion.

For 2012, the company expects to earn $1.65 to $1.70 per share, compared with core earnings of $1.57 for 2011, which excludes the tax benefit and restructuring expenses.

"While there are some near-term market challenges in parts of the world, the long-term opportunities for revenue growth and margin expansion are strong," Hikmet Ersek, president and chief executive of Western Union, said in a statement.

Earlier Tuesday, Western Union announced it was raising its quarterly dividend 25% to 10 cents per share.

Western Union relies on a network of 485,000 agent locations, including check cashers, payday lenders, banks, supermarkets and other retailers, to sell its services, which allow customers to send money overseas, pay bills and load money onto prepaid cards for a fee. Many of Western Union's customers are immigrants and low-income consumers who use its services to send money to family members in foreign countries.

The company and its competitors are facing increased regulation as the new Consumer Financial Protection Bureau enforces stricter rules around fee disclosures. Under the new rules, which take effect next year, companies will have to disclose the fees, exchange rate and total amount of money that will be sent to a recipient of a money transfer, or remittance. These fees must be disclosed when a consumer requests a transfer and when the consumer makes a payment.

Revenue from Western Union's consumer-to-consumer payments business rose 3% on a constant-currency basis as transactions increased 5%.

The company has been trying to diversify by adding services to handle payments between businesses and their customers. In November, the company closed on the acquisition of Travelex Holdings Ltd.'s business-payments unit for about $1 billion.

Revenue from Western Union's global business payments unit rose 24% but is still a small portion of the company's overall revenue.

Also during the quarter the company said it would pay $220 million to the U.S. Internal Revenue Service and various state tax authorities to resolve tax issues. The payment adds to $250 million Western Union already made to the IRS in 2010 and stems from the restructuring of its international operations in 2003 when the company was owned by Atlanta payments processor First Data Corp.

The agreement resulted in a $205 million benefit in the company's provision for income taxes in the quarter.

Western Union's shares closed up 1.1% at $19.70 but were down 3.6% in after-hours trading.

-By Andrew R. Johnson, Dow Jones Newswires; 212-416-3214; andrew.r.johnson@dowjones.com

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