Western Union Co.’s (WU) third quarter earnings of 33 cents per share were just a shade above the Zacks Consensus Estimate of 32 cents. While the results were almost in line with our expectations, the company continued to experience the challenged economic environment.

The company recorded a pre-tax accrual of $71 million during the quarter related to an anticipated agreement to resolve the company’s disputes with the State of Arizona and to fund a multi-state not-for-profit organization. Western Union earned 26 cents per share including the settlement accrual. Earnings excluding the settlement accrual were a penny per share lower on a constant currency basis. The company also completed the acquisition of Custom House, the international business-to-business payments provider.

Western Union’s revenue for the quarter was $1.3 billion, down 5% year-over-year. On a constant currency basis, revenues were down 2%. The acquisition of Custom House aided revenue with $8 million. However, due to acquisition-related costs, Custom House added $5 million of operating loss too.

Operating income was down 7% year-over-year to $352.5 million reflecting the settlement accrual impact. Excluding the impact from the settlement accrual, third quarter operating income margin was 27%. Operating margin in the prior year period was 27%.

The Consumer-to-Consumer segment, which generates the majority of the company’s revenue, reported revenues of $1.1 billion, down 5% year-over-year. Results were down 3% on constant currency basis. Operating income margin was down 20 basis points to 27.6%.

The Global Business Payments segment’s revenue was $171 million, down 3% year-over-year. However, excluding the impact of the Custom House acquisition, revenues were down 7%. Operating income margin was down 210 basis points to 24.3%. However, excluding Custom House impact, operating income margin was constant year-over-year.

For 2009, Western Union expects EPS in the range of $1.15 to $1.20 and adjusted EPS (excluding the settlement accrual) of $1.23 to $1.28.

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 have to wait for some time to see any significant improvement as the economic turmoil is expected to persist for a while.
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