UPDATE 2-Western Union confident it can fend off competition from Wal-Mart

Thu May 1, 2014 7:47pm EDT

* Company counting on large U.S. branch network, online business

* First-quarter earnings/share $0.37 vs est. $0.35

* Reaffirms full-year profit forecast (Adds CFO and analyst comment, background)

By Neha Dimri

May 1 (Reuters) - Western Union Co, the world's largest money-transfer company, is counting on its huge U.S. branch network to fend off looming competition from Wal-Mart Stores Inc.

The company's interim chief financial officer, Raj Agrawal, also told Reuters on Thursday that competition from the world's biggest retailer would not force Western Union to become more aggressive on pricing.

Wal-Mart said last month it would launch a money transfer service to broaden the financial services it offers to its low-income customers and boost store traffic.

Western Union has already cut prices and invested heavily in its online and mobile businesses to better compete with fast-growing rivals such as MoneyGram International Inc, Xoom Corp and privately owned Boom Financial Inc.

Agrawal, speaking after Western Union reported a stronger-than-expected quarterly profit, noted that his company had 46,000 U.S. locations, compared with Wal-Mart's 4,000, and that it operated in big cities and high traffic areas.

"So we provide convenience that customers cannot find with a Big Box store type of offering," he said, questioning whether customers would give up convenience to save a few dollars.

Customers of the Wal-Mart service will be able to transfer $50 for a fee of $4.50, compared with $5.00 at Western Union.

Unlike Western Union, Wal-Mart will not offer online transactions or transfers at its international locations.

Western Union reaffirmed its full-year earnings forecast, unlike MoneyGram, which slashed its profit forecast earlier this week, citing Wal-Mart's entry into the market.

Western Union, like is rivals, is facing increased compliance costs as regulators crack down on money laundering.

However, Agrawal said Western Union was in a stronger position to absorb the increased costs, which in the long term would give it a competitive advantage.

BTIG analyst Mark Palmer agreed. "Western Union is poised to take market share from competitors unable to adjust to industry-wide compliance cost increases," he said in a research note.

Western Union, which has about 20,000 locations in Russia and 15,000 in Ukraine, said it had not seen any material impact so far as from the crisis in the region.

Western Union said in March it had suspended its services for Russia's Bank Rossiya after the imposition of U.S. sanctions. The company derives about 2 percent of its revenue from its Russian operations.

EARNINGS BEAT ESTIMATES

Western Union's better-than-expected results reflected a 9 percent rise in volumes in the company's consumer-to-consumer business to 60.24 million in the first quarter ended March 31.

Consumer-to-consumer transactions account for about 80 percent of the company's revenue, with the rest coming from consumer payments to businesses and payments between businesses.

Westernunion.com's consumer-to-consumer transactions increased 55 percent in the quarter.

Western Union, which gets most of its business from migrant workers sending money home, said its net income fell 4 percent to $203 million, or 37 cents per share, in the first quarter, mainly due to a rise in expenses. Revenue rose 2 percent to $1.35 billion.

Analysts expected Western Union to earn 35 cents per share on revenue of $1.36 billion.

Western Union's shares were trading at $16.00 in extended trading after closing at $15.85 on Thursday on the New York Stock Exchange. (Reporting By Neha Dimri in Bangalore; Additional reporting by Aman Shah; Editing by Savio D'Souza)

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