July 24, 2012 / 7:44 PM / 6 years ago

Western Union's business payment unit faces slow growth

(Reuters) - Western Union Co (WU.N), the world’s largest payment transfer company, raised its full-year profit forecast due to a one-time tax gain in the second quarter, but said a deteriorating global economy is expected to weigh on its business payments unit.

The company bought Travelex’s global business payments unit for about $970 million last year to bulk up its products to businesses and help ride out slowing growth in its consumer segment, which accounts for more than 80 percent of its revenue.

“Performance of the acquisition has been disappointing, largely due to a slowdown in global trade, which is a big driver of growth for Travelex,” David Togut of Evercore Partners said.

Chief Executive Hikmet Ersek agreed that revenue at the unit has “come a little short because of global trends.”

Western Union now expects the business payments unit to post pro-forma constant currency revenue growth in the mid-single digits in the year. It had earlier expected the unit to post low double-digit constant currency revenue growth.

The business solutions segment, which lets companies transfer money across countries, contributed 6 percent to total revenue in the second quarter ended June 30.

For the full year, it expects to earn between $1.68 and $1.72 per share, up from its earlier forecast of $1.65 to $1.70 per share.

The company maintained its full-year revenue forecast, but cut its operating margin forecast by 50 basis points to 24.5 percent as it expects higher compliance costs, mainly related to remittance disclosure rules associated with the Dodd-Frank regulations.

Revenue from electronic channels, which includes westernunion.com, account based money transfer, and mobile money transfer, grew 26 percent. The channels contribute 3 percent to total revenue.


The company, whose prepaid cards were available at about 22,000 retail locations around the world at the end of the quarter, recorded a 6 percent rise in prepaid revenue.

“We expect prepaid revenue growth to increase in the second half of the year, as we benefit from greatly expanded distribution in the U.S. and some of the international introductions,” CEO Ersek said on a post-earnings conference call with analysts.

Prepaid revenue currently contributes about 1 percent to Western Union’s total revenue, but Ersek expects the contribution to increase in the near term.

Net income climbed 3 percent to $271.2 million, or 44 cents per share, while revenue rose 4 percent to $1.43 billion.

Shares of the company were up 2 percent at $17.25 in late-afternoon trading on Tuesday on the New York Stock Exchange.

Reporting by Sharanya Hrishikesh in Bangalore; Editing by Sreejiraj Eluvangal, Maju Samuel

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