MoneyGram International Inc. (MGI) reported fourth quarter loss per share of 23 cents, substantially lower than the Zacks Consensus Estimate of a loss of 35 cents and modestly lower than the loss of 29 cents reported in the year-ago quarter.
Results included stock-based compensation costs of $5.9 million, $2.3 million of restructuring and reorganization costs, $16.4 million of legal accruals and $3.6 million write off of deferred financing and debt discount. Reported net loss was $19.4 million as compared to net loss of $23.9 million in the year-ago quarter.
Total operating expenses decreased 9.1% year over year to $255.3 million. Higher money transfer transaction volumes and decreased operating expenses were offset by lower revenue per transaction that continues to be within the $50 price band in the U.S.
MoneyGram’s total revenue for the quarter was $303.4 million, up 2.6% from the year-ago period, also exceeding the Zacks Consensus Estimate of $292 million. While fee and other revenue climbed 3.1% year over year to $298.3 million, investment revenue decreased 18.8% year over year to $5.1 million. Net securities gain/loss was nil against net securities loss of $0.8 million in the year-ago quarter.
Segment Results
In the Global Funds Transfer segment, MoneyGram’s revenue rose by 5% year over year to $276.7 million. Money transfer transaction volume increased 12%, while money transfer fee and other revenue grew 7% to $246.2 million from the prior-year period.
On a constant currency basis, money transfer fee and other revenue increased 9% on a year over year basis. However, bill payment transaction volume decreased 3% year over year, whereas, fee and other revenue declined 8% to $30.4 million from the prior-year quarter. Operating margin increased marginally to 11.9% from 11.4% in the year-ago quarter. Global agent locations reached 227,000, an increase of 19% over the prior-year quarter.
Total money transfer transactions originating outside the U.S. increased 18% from the prior year. Although, transaction growth in Spain and Mexico has shown some improvement, it is yet to boost MoneyGram’s non-U.S. transactions significantly. Excluding Spain, transactions originating outside US saw a healthy growth of 21% from the prior year. Transaction volume to Mexico increased 6% year over year while that in Spain climbed 2% in the reported quarter. Besides, excluding transactions sent to Mexico, MoneyGram’s transactions originating in the U.S. increased 11% year over year. Intra-U.S. transaction growth increased 13% over prior-year period.
In the Financial Paper Products segment, MoneyGram’s total revenue declined 14% year over year to $26.0 million. However, operating margin dramatically rose to 32.9% from 4.5% in the year-ago quarter, reflecting reduced commission expenses.
For full year 2010, MoneyGram reported net loss of $91.2 million or $1.10 per share as compared with $122.4 million or $1.48 per share. Results also came in favourable as compared to the Zacks Consensus Estimate of a loss of $1.22 per share. Total revenue grew about 0.4% year over year to $1.17 billion and also exceeded the Zacks Consensus Estimate of $1.10 billion. Total operating expenses dipped 7.2% year over year to $1.01 billion in 2010.
Liquidity
As of December 31, 2010, MoneyGram had cash and cash equivalents of $3.27 billion, net receivables of $982.3 million and available-for-sale investments of $160.9 million. MoneyGram ended the quarter with $641.3 million of outstanding debt and assets in excess of payment service obligations of $230.2 million. MoneyGram made an optional prepayment of $75 million during the reported quarter for its tranche B term loan under the senior secured credit facility, thereby lowering its total outstanding debt by 35% to $352 million (repaying $187 million in 2009) ever since January 2009.
Our Take
MoneyGram’s core business is expanding with a vast global network, increasing money transfer transaction volumes and disciplined expense management. Although the restructuring program taken up in 2010 will take longer to reap strong results, declining debts reflect a sturdy capital position. We believe that the company has the potential to overcome the impact of the volatile U.S. dollar against other currencies and additional losses in its investment portfolio, once the global economy rebounds to its historical highs.
On February 2, peer Western Union Co. (WU) reported fourth quarter earnings of 38 cents per share, 4 cents ahead of the Zacks Consensus Estimate, benefiting from a strong margin improvement led by its Consumer-to-Consumer segment. The earnings also compared favorably with 32 cents in the prior-year quarter.
MoneyGram carries a Zacks #3 Rank, which translates into a “Hold” recommendation over the short term. Also, over the medium-to-long term, we suggest the investors to maintain a “Neutral” position.
MONEYGRAM INTL (MGI): Free Stock Analysis Report
WESTERN UNION (WU): Free Stock Analysis Report
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