MoneyGram International Inc. (MGI) reported third quarter 2011 earnings per share of 3 cents, in line with the Zacks Consensus Estimate but significantly higher than the loss of 30 cents in the year-ago quarter.
Consequently, reported net income jumped to $15.8 million from a net loss of $24.6 million in the year-ago quarter. Excluding preferred dividend payouts, the company had reported net income of $10.0 million in the year-ago quarter.
Results included stock-based compensation costs of $4.4 million, $6.4 million of restructuring and reorganization costs, $1.3 million in legal accruals and $0.9 million in asset impairment charges.
Total operating expenses climbed 10.7% year over year to $281.6 million. However, interest expense decreased by $2.5 million from the prior year to $22.2 million as a result of continued delevering activities and the refinancing initiated in May 2011.
Higher money transfer transaction volumes and higher fee and other revenue drove the top line, while absence of preferred dividend payouts, lower tax and interest expenses helped the bottom line. However, these were partially offset by lower investment income and higher operating expenses.
MoneyGram’s total revenue for the quarter was $321.9 million, up 9.9% from the year-ago period, also exceeding the Zacks Consensus Estimate of $318 million. While fee and other revenue climbed 10.2% year over year to $318.0 million, investment revenue decreased 11.4% year over year to $3.9 million.
Segment Results
In the Global Funds Transfer segment, MoneyGram’s revenue rose 12% year over year to $298.9 million. Money transfer transaction volume increased 13%, while money transfer fee and other revenue also grew 15% to $270.4 million from the prior-year period. On a constant currency basis, money transfer fee and other revenue increased 12% on a year-over-year basis.
However, bill payment transaction volume dipped 5% year over year, whereas, fee and other revenue declined 9% to $28.3 million from the prior-year quarter. Operating margin slipped to 13.1% from 13.7% in the year-ago quarter. Global agent locations reached 256,000, an increase of 24% over the prior-year quarter.
Total money transfer transactions originating outside the U.S. escalated 16% from the prior-year quarter. Transaction volume to Mexico increased 13% year over year, significantly improving from a negative growth in the prior-year quarter. MoneyGram’s transactions originating in the U.S. increased 16% year over year, while U.S. outbound transaction growth increased 9% over the prior-year period.
In the Financial Paper Products segment, MoneyGram’s total revenue declined 13% year over year to $22.5 million, reflecting reduced investment, money order and official check revenues. As a result, adjusted operating margin plunged to 30.5% from 32.8% in the year-ago quarter.
Liquidity
As of September 30, 2011, MoneyGram had cash and cash equivalents of $2.58 billion, net receivables of $1.08 billion and available-for-sale investments of $118.8 million. MoneyGram ended the quarter with $840.0 million of outstanding debt and assets in excess of payment service obligations of $249.4 million.
Business Update
During the reported quarter, MoneyGram expanded its network by adding five national postal networks in India, Lebanon, Netherlands, Iceland and West Africa. Additionally, the company added several new banks and retail locations including three banks in Uzbekistan, Oschad Bank in the Ukraine, Tameer Bank in Pakistan, CI Banco in Mexico and QC Holdings in Kansas City.
Besides, the company successfully developed new money transfer relationships with SWIFT- an industry-owned co-operative that supplies secure messaging services and interface software to financial institutions, CashEdge Inc. – the leading provider of Intelligent Money Movement services, Cumberland Farms – the first agent to launch the MoneyGram Xpress service and AccountNow – the first U.S.-based prepaid card program to provide MoneyGram’s money transfer products as an online agent beginning November 2011.
Peer Take
On Tuesday, MoneyGram’s peer Western Union Co. (WU) posted third quarter 2011 earnings of 42 cents per share, triple pennies higher than the Zacks Consensus Estimate and exceeding 37 cents recorded in the prior-year period. Results benefited from a modest margin improvement led by its Consumer-to-Consumer segment and lower share count.
MoneyGram carries a Zacks #1 Rank, which translates into a ‘Strong Buy’ recommendation over the short term. Additionally, over the medium-to-long term, we suggest the investors to maintain a ‘Neutral’ position.
