Global money transfer service provider MoneyGram International Inc. (MGI) is scheduled to release its second quarter earnings results before the market opens on July 30, 2010. The Zacks Consensus Estimate for the second quarter is a loss of 28 cents per share, representing a loss of about 12.0% over the year-ago quarter.
Following the first quarter trends, higher operating expenses, declining bill payment transaction volumes and persistent weakness in Mexico and Spain could continue to mar the growth from increasing transaction volumes. However, declining debts reflect a sturdy capital position. It will be interesting to see for any further debt repayments in the second quarter. Besides, the growing presence in a high potential market continues to strengthen its revenue stream.
Previous Quarter Performance
MoneyGram reported first quarter loss per share of 26 cents, modestly short of the Zacks Consensus Estimate of a loss of 31 cents but higher than the loss of 20 cents reported in the year-ago quarter. Reported net loss was $10.8 million as compared to net loss of $11.8 million in the year-ago quarter. Total expenses increased 3.2% to $153.2 million against $148.5 million in the year-ago quarter.
MoneyGram’s total revenue for the quarter was $288.9 million, up 3% from $279.9 million in the year-ago period. Fee and other revenue increased 5% year over year to $280.9 million, while investment revenue decreased to $5.6 million as compared with $11.7 million in the prior year. Net securities gains increased dramatically to $2.4 million as compared with $0.06 million in the year-ago quarter.
In the Global Funds Transfer segment, MoneyGram’s revenue rose by 5% to $256.7 million versus $244.4 million in the year-ago period. Operating margin declined to 10.8% from 15.1% in the year-ago quarter. Global agent locations reached 198,000, an increase of 10% over the prior-year quarter.
In the Financial Paper Products segment, MoneyGram’s total revenue declined 7.2% to $28.4 million from $30.6 million in the prior-year quarter. However, operating margin grew to 31.3% from 23.8% in the year-ago quarter.
Agreement with Analysts
Ahead of the earnings release, we do not see much variation in analyst estimates over the past 30 days. A similar trend has been noticed over the past 7 days. Hence, the estimate revision trends and the magnitude of such revisions justify no major changes in the sentiment.
In the last 30 days, none of the analysts has revised their estimates for the second or the third quarter neither for fiscal 2010 or 2011, thus providing no directional movement. This implies that the analysts have provided a neutral outlook and do not foresee any upward or downward pressure on the results.
Further, the neutral approach toward MoneyGram also gives scope for some positive surprises in the second half of 2010, traditionally, when increased money transfer activity is witnessed based on seasonal factors. Moreover, the company is focused on removing its debt component from its balance sheet, a positive that could increase operational efficiencies by mitigating debt costs. On the other hand, it could also point out the absence of any other major catalyst for growth.
Magnitude of Estimate Revisions
In the last 90 days, there have been moderate revisions in the earnings estimate following the first-quarter results. Loss per share dropped by a penny to the current level of 28 cents for the second quarter. For fiscal 2010, estimates saw a modest decline in loss to $1.03 per share from $1.13 over the past 90 days. Also, for fiscal 2011, estimated loss per share dipped from 88 cents to the current 84 cents over the last 90 days. This trend reveals the optimistic pat in the analysts’ opinion about MoneyGram.
Going by past trends, we have a mixed opinion about MoneyGram exceeding estimates. The company’s reported earnings per share missed its expectations for two of the last four quarters and has a negative four-quarter average surprise of 338.47%.
MoneyGram remains focused on generating cash to pay down debt, expanding its agent network along with growing its transaction volume and improving the customer experience. For this, the company continues to upgrade its operating efficiencies as it seeks to create profitable, sustainable growth and long-term shareholder value in the future.
We believe that MoneyGram 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.
Hence, we currently provide an Outperform recommendation on MoneyGram, given the stock’s growth potential in the intermediate to longer term. This also corresponds to the Zacks #3 Rank (short-term: Hold).