February 11, 2014 / 9:40 PM / in 4 years

UPDATE 2-Western Union sees lower regulatory expenses in 2014

* 4th-qtr profit $0.31/shr vs est $0.32

* Tightens compliance cost guidance for 2014

* Announces $500 mln share buyback

By Neha Dimri

Feb 11 (Reuters) - Western Union Co said it expects the high compliance costs that hit its earnings in the fourth quarter to ease in 2014, helping to push up the company’s shares after the bell.

The world’s largest money-transfer company reported a 27 percent drop in quarterly profit, largely due higher costs linked to tightened regulations to prevent money laundering.

“We expect (compliance) costs in 2014 to be 3.5 to 4 percent of our revenue ... That is (also) probably the pickable range for 2015,” interim Chief Financial Officer Raj Agrawal told Reuters after the company announced results on Tuesday.

Western Union said in October that it did not expect earnings growth in 2014 due to higher compliance costs, which it pegged at 3.5-4.5 percent of revenue.

“The tighter range on compliance costs reflects management getting a somewhat better handle on how the new regulatory requirements will affect the company going forward,” BTIG analyst Mark Palmer said.

Western Union, which gets most of its business from migrant workers sending money home, said it expected earnings of $1.40 to $1.50 per share in 2014, based on low-to-mid-single digit percentage growth in revenue on a constant-currency basis.

The guidance met expectations that were cut sharply after the company’s comments accompanying its third-quarter results in October.

Western Union, which also announced a $500 million share buyback, said it expected to be less aggressive with price cuts for its money-transfer products in 2014.

Smaller rival Money Gram International Inc reported a stronger-than-expected profit earlier on Tuesday, but warned of incremental compliance-related and restructuring costs.

“We continue to view Western Union as well-positioned to take market share from competitors unable to adjust to the industry-wide compliance cost increases,” Palmer said.


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

Agrawal said he did not expect Western Union to be as aggressive with price cuts as it was in 2013, although he added that “if pricing is required to be adjusted we will do it.”

Western Union’s net income fell to $173.4 million, or 31 cents per share, in the quarter ended Dec. 31, from $237.9 million, or 40 cents per share, a year earlier. Revenue dropped marginally to $1.42 billion.

Transaction volumes rose 9 percent to 64.19 million in the fourth quarter from a year earlier, while remittances increased to $21.5 billion from $20 billion.

Analysts on average had expected the company to earn 32 cents per share on revenue of $1.43 billion, according to Thomson Reuters I/B/E/S.

Western Union’s stock had dropped about 18 percent up to Tuesday’s close since the company’s last quarterly results.

The company’s shares rose 2 percent in extended trading after closing at $15.88 on the New York Stock Exchange.

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