Western Union Co.’s (WU) fourth quarter earnings came in at 32 cents per share, in-line with the Zacks Consensus Estimate. However, the company continued to experience a challenging economic environment. Earnings have decreased from the prior-year quarter when the company had earned 34 cents, or 37 cents excluding restructuring expenses. Western Union’s earnings guidance for 2010 is also below the Zacks Consensus Estimate.

For the full-year 2009, Western Union reported earnings of $1.21 per share, or $1.29 excluding the one-time third quarter Arizona and multi-state settlement accrual. The company earned $1.24 per share, or $1.31 excluding restructuring expenses.

Western Union’s revenue for the quarter was $1.3 billion, up 2% year-over-year. On a constant currency basis, revenues were down 1%. Operating income was down 5% year-over-year to $318.6 million. Operating margin was 24% compared to the prior-year quarter’s margin of 26%, or 28% excluding restructuring expenses.

The acquisition of Custom House in September 2009 has aided revenue with $23 million. However, due to acquisition-related costs, Custom House added $5 million of operating loss as well. Additionally the operating margins were impacted by the FEXCO acquisition-related costs, reduction in U.S. domestic pricing and marketing promotions, the assumption of the retail money order investment portfolio and other expenses.

The Consumer-to-Consumer (C2C) segment, which generates the majority of the company’s revenue, reported revenues of $1.1 billion, up 2% year-over-year. Results were, however, down 2% on a constant currency basis. Operating income margin was down to 26% from 29% in the prior-year quarter.

The Global Business Payments segment’s revenue was $182 million, up 4% year-over-year. However, excluding the impact of the Custom House acquisition, revenues were down 9%. Operating income margin was 20%, or 26% excluding Custom House, compared to 27% in the prior-year quarter.

Outlook 2010

For 2010, Western Union expects GAAP EPS in the range of $1.29 to $1.34. This is below the Zacks Consensus Estimate of $1.40 per share. GAAP revenue is expected to be in the range of a 1% decline to 2% growth while constant currency revenue growth is projected to be 1% lower than the GAAP revenue.

Western Union expects margins to be approximately 26%. Though the company expects margins in the C2C business to expand in 2010, margins are expected to decline in the Global Business Payments as a result of investments in business-to-business (B2B) expansions and acquisition related costs and for the softness in the U.S. bill payment business.

In December 2009, Western Union has increased its dividend from 4 cents per share to 24 cents per share (6 cents per share quarterly) and announced a share repurchase authorization of $1 billion of its shares.

The continued deterioration in global unemployment has resulted in fewer transactions. However, we note that transaction, revenue and pricing trends showed some improvement relative to the prior quarter. We remain encouraged, though we believe that we would have to wait for some time to see any significant improvement as the economic turmoil is expected to persist for awhile.

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