Published October 31, 2012
Shares of Western Union (WU) plummeted more than 25% Wednesday morning after the world’s largest payment transfer company took an axe to its full-year earnings targets amid rising competition.
The gloomier outlook from Western Union was issued Tuesday evening and triggered a slew of downgrades from major brokerages.
The company said it earned $269.5 million, or 45 cents a share, last quarter, compared with a profit of $239.7 million, or 38 cents a share, a year earlier.
Excluding one-time items, the company earned 45 cents a share, up from 38 cents a share a year earlier and matching estimates from analysts. Revenue inched up 1% to $1.4 billion.
However, Western Union slashed its 2012 outlook, projecting non-GAAP EPS of $1.65 to $1.68, down from $1.73 to $1.77 previously. Even the high end of the new range would badly miss the Street’s view of $1.76.
“Business was challenging, as soft global economic conditions, compliance related changes, and competitive pressures in certain money transfer corridors impacted revenues,” CEO Hikmet Ersek said in a statement.
To combat competitive pressures and other issues, Western Union unveiled plans for a series of strategic moves, including increasing its pricing investment, continuing to invest in digital and cutting $30 million of annual cost savings by 2014.
Western Union’s outlook downgrade and new pricing strategy prompted a number of analysts to downgrade the stock, including Wells Fargo (WFC) to “market perform” from “outperform.”
The new pricing strategy likely pushes any “earnings recovery to 2014 at the earliest, when potential market-share gains from lower prices should drive higher revenue,” analysts at Evercore (EVR) wrote in a note, Dow Jones Newswires reported. Evercore downgraded Western Union to “underweight” from “overweight.”
On the positive side, Western Union upped its share repurchase plan to $750 million and raised its annual dividend by 25% to 50 cents a share.
Still, Wall Street hammered Western Union for the latest developments, driving its shares down 27.11% to $13.07 in recent trading on Wednesday. The stock had been trading roughly flat on the year before the selloff.