Strong growth in remittance and bill payment volume helped drive up MoneyGram International Inc.’s second-quarter earnings and prompted it to raise its full-year guidance.
The Minneapolis company said its revenue rose 23.4% from the second quarter of last year, to $154.3 million, and net income rose 41%, to $36.7 million.
“Second-quarter results were very strong and driven by continued robust money transfer transaction growth,” Philip Milne, MoneyGram’s president and chief executive, said during a conference call to discuss the results with analysts Wednesday.
Revenue from MoneyGram’s funds transfer unit increased 26%, to $202 million, and its operating income increased 37%, to $40.8 million. Volume for the unit’s money transfer business, which includes remittance and bill payment services, rose 42%.
The company’s other unit, payment systems, which outsources products and services such as money orders for banks, also posted solid, though slightly less impressive, gains. Revenue rose 13%, to $90.9 million, and operating income increased 42%, to $16.2 million.
Mr. Milne said that MoneyGram’s new locations are taking share away from less-established competitors.
“We firmly believe that as we set up shop,” people who were using “informal” providers “are going to kind of move to the safety and security and reliability of a branded product,” he said.
The number of worldwide MoneyGram locations grew 19% from a year earlier, to more than 96,000 at the end of the quarter.
Much of the growth was in such important markets as Mexico (where it got 1,500 new locations), Guatemala, Nigeria, South Africa, Eastern Europe, and the Asia Pacific region.
The company also acquired the Italian remittance company Money Express, which has been added to MoneyGram Italy, a newly formed subsidiary.
“MoneyGram Italy gets us closer to our Italian agent base and makes it easier in this key market,” Mr. Milne said. With the acquisition and the renewal of its deal with Poste Italiane, MoneyGram now has about 10,000 money transfer locations in Italy.
The company increased its full-year earnings guidance to a range of $1.37 to $1.42 a share, from an earlier range of $1.36 to $1.41.
The results “are a good indicator of strong fundamentals in” the money transfer industry, David Parker, an analyst with Merrill Lynch & Co. Inc., wrote in a research note issued Thursday. “This should bode well for First Data’s Western Union business,” especially since MoneyGram was winning business from “niche players and informal methods.”
The Denver transaction processor First Data Corp. is planning to spin off its Western Union Financial Services Inc. unit, the giant of the remittance industry. That transaction is expected to be completed in the fourth quarter.
Daniel R. Perlin, an analyst with Wachovia Securities, wrote in a research note issued Wednesday, “MoneyGram is in the sweet spot to take advantage of the long-term secular growth trends occurring in the money transfer industry. Its business strategy of being the low-price-point provider, coupled with significant agent base expansions should support double-digit revenue and EPS growth over the next three years.”
MoneyGram’s stock valuation could increase when First Data spins off Western Union, he wrote, because “Western Union is likely to be afforded a premium multiple.”
