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Western Union (NYSE:WU)

Q2 2011 Earnings Call

July 26, 2011 8:30 am ET

Executives

Hikmet Ersek - Chief Executive Officer, President and Director

Scott Scheirman - Chief Financial Officer and Executive Vice President

Michael Salop - Senior Vice President of Investor Relations

Analysts

David Togut - Evercore Partners Inc.

Tien-Tsin Huang - JP Morgan Chase & Co

Roman Leal - Goldman Sachs Group Inc.

Kartik Mehta - Northcoast Research

Andrew Jeffrey - SunTrust Robinson Humphrey, Inc.

Darrin Peller - Barclays Capital

Ashwin Shirvaikar - Citigroup Inc

Meghna Ladha - Susquehanna Financial Group, LLLP

Timothy Willi - Wells Fargo Securities, LLC

James Kissane - BofA Merrill Lynch

Operator

Good day, ladies and gentlemen, and welcome to the Second Quarter 2011 Western Union Co. Earnings Conference Call. My name is Chantilly, and I will be your facilitator for today's call. [Operator Instructions] I would now like to turn the presentation over to your host for today's call, Mr. Mike Salop, Senior Vice President of Investor -- Investment Relations. Please proceed, sir.

Michael Salop

Thank you, and good morning, everyone. On today's call, we'll have comments from Hikmet Ersek, our President and Chief Executive Officer; and Scott Scheirman, Executive Vice President and Chief Financial Officer. The slides that accompany this call and webcast can be found at westernunion.com under the Investor Relations tab and will remain available after the call. Additional operational statistics have been provided in a supplemental table with our press release.

As a reminder, today's call is being recorded, and our comments include forward-looking statements. Please refer to the cautionary language in the earnings release and in Western Union's filings with the Securities and Exchange Commission, including the 2010 Form 10-K for additional information concerning factors that could cause actual results to differ materially from the forward-looking statements.

During the call, we will discuss some items that do not conform to the Generally Accepted Accounting Principles. We have reconciled those items to the most comparable GAAP measures on our website, westernunion.com, under the Investor Relations section. All statements made by Western Union officers on this call are the property of the Western Union Company and subject to copyright protection. Other than the replay, Western Union has not authorized and disclaims responsibility for any recording, replay or distribution of any transcription of this call.

I would now like to turn the call over to Hikmet Ersek.

Hikmet Ersek

Thank you, Mike, and welcome to everybody on the call. We continue to see solid trend across our business in the quarter. We reported revenue increasing 7%, and constant currency revenue up 5%. And we are pleased to be able to raise our full year outlook for both revenue and earnings per share.

The consumer-to-consumer segment, constant currency revenue increased 5% for the third consecutive quarter. Reported revenue in C2C increased 8% and was aided by the stronger euro. Each of our regions provided good revenue growth. Asia Pacific increased 16%, which included double-digit growth from China. Revenue in the Europe, Middle East, Africa and South Asia region grew 8%. Most of the large European markets continue to perform well, and we also saw good growth from the Gulf States and a double-digit revenue increase in India.

There was still some negative impact from the Ivory Coast as agent locations were closed in April and then gradually reopened through May, but business is largely returning back to normal by end of the quarter. The Americas region delivered 5% revenue growth, with continued growth in the U.S. outbound, still challenging business in Mexico and further strong performance from U.S. domestic money transfer. Domestic money transfer revenue increased 9% on 19% transaction growth, and we continue to be very pleased with the results of the repositioning we undertook in late 2009.

We were also able to make further strides with our North American banking strategy in the quarter as we signed Regions Bank and its 1,700 U.S. locations, as an agent for both money transfer and expedited bill payment, with plans to have account-based money transfer over time. Globally, we added another 15,000 Asian locations in the quarter, bringing our total to 470,000 locations.

Turning to Global Business Payments. Revenue increased 4%, thanks to contributions from both Western Union Business Solutions and the Bill Payment business. In Bill Payments, we reported revenue growth of 2%, our first quarterly increase since 2008 and also delivered good margin improvements. Just this month, we launched a new service with Alibaba, a global e-commerce leader based in China. Now buyers of goods on the AliExpress.com e-commerce platform have the option of paying cash at Western Union Agent location in more than 160 countries and territories. This service provides convenience to buyers, quick cash flow to sellers and the new revenue opportunity for Western Union, leveraging our brand, agent network and cross-border money movement capabilities.

Western Union Business Solutions delivered 14% revenue growth in the quarter. We also took our first steps towards utilizing our agent network to distribute business payment services in some markets. We've signed agreements with agent in the Philippines, Peru and Chile, which will offer the services to the SMEs in these countries later this year. These agents will develop sales forces, and utilize local contract and market knowledge to build the business. This model also lowers the cost of entering a new market for Western Union Business Solutions.

And of course, we announced earlier this month that we agreed to acquire Travelex Global Business Payments from Travelex Holdings. As I mentioned on our July 5 conference call, I'm very excited about the foundation we will establish in business-to-business cross-border payments by combining this business with Western Union Business Solutions. The B2B market is big and growing, and the cross-border payments needs of small business are largely underserved today. The acquisition will immediately give us a presence in 16 countries, including 7 where Business Solutions currently is not present. We will have a combined sales force of 450 people, strong product and service capabilities, and extensive bank and banking and payment connectivity across the world.

We also have the opportunity to leverage the Western Union brand, balance sheet, agent network and global financial institution and regulatory relationships. In addition to serving small- and medium-sized enterprises, Travelex Global Business Payments also has a sizable business providing international payment services to third-party distribution channels such as banks, with over 500 financial institution customers in North America and Australia. We expect this acquisition to close late this year. It will take some time to integrate the companies and platforms and implement our combined growth strategies, but we believe this will be a great growth opportunity for many years to come.

Let me also give you a quick update on some of our strategic initiatives. In electronic channels, which include westernunion.com, account-based money transfer and mobile money transfer, revenue increased over 35% in the quarter and represented 3% of our total company revenue. Our electronic account-based money transfer transactions, which includes cash-to-account and account-to-cash through banks increased approximately 40% in the quarter. We now have over 60 banks signed to offer account-based money transfer services with 30 active.

In Italy, our ATM-based service with Banca Intesa Sanpaolo is now being activated. The bank customers will be able to send electronic money transfers from their accounts using ATMs. And we expect to rollout to 7,000 in Intesa Sanpaolo ATMs in the third quarter.

Westernunion.com had transaction growth in international markets of nearly 40% and globally, transactions increased by over 25%. In mobile money transfer, we have 18 agreements in place with mobile network operators and banks, and over 100,000 of our agent locations in 57 countries are enabled to provide cash-to-mobile service.

In the quarter, we added an iPhone app that allows U.S. consumers to transfer money from their phone with a debit or credit card. We also have in place, a service that allows Western Union Business Solutions' customers to initiate international payments from their accounts through smartphones. As you can see, all these examples, demonstrate that we are making good progress with our electronic channel initiatives.

In stored value, our prepaid cards in force in the U.S. now total 1.1 million, with retail distribution at 12,000 locations. In the second quarter, approximately $120 million of principal was loaded onto Western Union prepaid cards through 500,000 loads. We continue to expand our efforts in the U.S., and we have some very good potential partnership opportunities in the pipeline.

Due to the late timing of these partnerships and retail distribution deals, we probably will not reach our goal of doubling the cards in force this year, as we have been adding about 100,000 cards each quarter. However, as stated previously, we still expect prepaid revenues to be approximately 1% of total company revenue in 2011. We are also continuing our growth for international expansion launches later this year in the U.K. and other markets. International expansion of stored value is a great opportunity, but will also take some time to develop market by market.

So our initiatives are moving forward and our overall business performance has been solid. We do not expect global economic conditions to improve significantly this year, but we have confidence in our business trends and are comfortable increasing our financial outlook. We continue to deploy our strong cash flow to invest in the business, make strategic acquisitions to aid our growth strategies and return funds to shareholders.

In addition to the Travelex Global Business Payment acquisition, which we expect to close at the end of 2011, we completed the Angelo Costa agent acquisition in Europe in April and plan to complete the Finint acquisition by end of the year. We also been active with returning cash to shareholders. In the first 2 quarters, we have purchased $660 million of our shares and paid $95 million in dividends, which included a 14% dividend increase in the second quarter.

Now to give you a more detailed review of the quarter and our full year outlook, I would like to turn the call over to Scott.

Scott Scheirman

Thank you, Hikmet. Overall, for the quarter, we delivered consolidated revenue growth of 7% on a reported basis or 5% on a constant currency basis. Currency translation added approximately $32 million to GAAP revenues in the quarter, primarily due to the strength of the European currencies. Transaction fee revenue increased 6%, while foreign exchange revenue grew 12%.

Within C2C, revenue increased 8%, with transaction fee revenue up 7% and foreign exchange revenue up 12%. Foreign exchange revenue was primarily driven by growth in cross-border principal, which increased 10% in the quarter. The consolidated revenue increase reflected continued solid growth in each of our consumer-to-consumer regions, the translation effect of stronger European currencies and growth in Western Union Business Solutions. In addition, our Bill Payments business turned to positive revenue growth in the quarter.

In the consumer-to-consumer segment, revenue increased 8%. Constant currency revenue growth in C2C was 5%, which was consistent with the first quarter, while transaction growth was 6%, down just slightly from the first quarter. The company's C2C cross-border principal increased 10% or 6% on a constant currency basis. C2C principal per transaction increased 4% year-over-year and was flat on a constant currency basis.

In the international C2C business, revenue grew 8% on a reported basis and 5% on a constant currency basis. International transaction growth was 5%, consistent with the first quarter. International constant currency principal per transaction increased 1% compared to the prior year, which was the third consecutive quarterly increase. This is a positive trend, as consumers sending more money generally indicates they have more confidence in our economic outlook or have a better employment situation. Including the impact of currency, international principal per transaction increased 6% in the quarter.

The market research from Aite just published its revised estimate of the cross-border remittance market for 2009 and 2010. Aite estimated the principal market at $398 billion in 2010, a 3% increase from 2009 and projects growth to improve to 5% in 2011 and 2012. Based on Aite's data, Western Union's cross-border market share was 17.2% in 2010, an increase of approximately 50 basis points from 2009, and we are confident we will gain share again in 2011.

Turning to the regions. Our C2C business in the Europe, Middle East, Africa and South Asia region grew revenue at 8% on transaction growth of 4%. Transaction growth was consistent with the first quarter, while revenue growth improved primarily due to the strengthening of the euro. Constant currency revenue trends in Europe improved slightly compared to the first quarter led by Germany. France and Russia also continued to deliver solid growth. We completed the Angelo Costa acquisition in April and signed an agreement to purchase Finint, which we expect to close later this year for approximately EUR 100 million, subject to a working capital adjustment. Costa and Finint were 2 of our largest super agents in Europe and further advance our European strategy of having more direct access to the agent locations and creating scale efficiencies. In India, trends increased relative to the first quarter, with 11% revenue growth and 8% transaction growth. We still have some negative impact in the quarter on transactions and revenue from the Ivory Coast in Libya. Ivory Coast agent started to reopen about midway to the quarter, while Libya is still almost entirely shut down. Egypt was opened throughout the quarter. In the Gulf States, our growth rate improved from the first quarter.

Turning to the Americas region. Revenue increased 5% on transaction growth of 7%. Domestic money transfer continues to have strong momentum, with revenue growth of 9% on transaction growth of 19% in the quarter. Mexico continues to be challenging, as revenue increased 1%, while transactions declined 1%. Midway through the quarter, we began to pilot some new pricing from the U.S. to Mexico to test different levels of price elasticity in consumer usage. The tests include adding a $5 for $50 promotion, a mix of other -- and a mix of other different value propositions. It is too early to make any conclusions, but initially, we have seen some positive transaction lift and relatively neutral impact on revenue. The tests are ongoing and we will continue to tweak the model based on consumer reaction. One positive impact we are seeing is some shifts from Next Day to Money in Minutes, as we have reduced the price difference between the 2.

In the Asia-Pacific region, results remained strong, with revenue growth of 16% on a 12% increase in transactions. There was good growth across the region, with acceleration in Australia and China. China posted increases of 13% on revenue and 7% on transactions. For the overall C2C business, the spread between transaction and revenue growth in the quarter narrowed to 1 percentage point, excluding the impact of currency, which had a 3-point benefit. Mix was neutral in the quarter and the impact of pricing was 1%. For the full year, we now expect price decreases to be between 1% and 2%, as fee reductions are slightly smaller than planned and there are some offset by modest increases in FX spreads in some corridors. For the next couple of years, we expect net price decreases to be in the range of 1% to 3%, but we are constantly evaluating elasticity dynamics in the different corridors, and we will only implement where we think we can drive additional revenue over time.

Moving to the Global Business Payments. The overall segment revenue increased 4%. The Bill Payment business turned positive, with revenue increasing 2%, as continued strong international growth increases in U.S. electronic payments and moderating declines in U.S. cash payments drove the improvement. Western Union Business Solutions revenue increased 14%, remains on track for mid-teen revenue growth for the year.

Turning to margins. The second quarter consolidated GAAP operating margin was 25.7%, which compares to 24.4% in 2010. Excluding restructuring charges, the consolidated operating margin was 26.3% in this year's second quarter compared to 27.1% in the prior year. The current quarter includes $6 million of deal costs related to the acquisition of Travelex Global Business Payments. Currency translation aided revenue by approximately $32 million, but negatively impacted operating margins. As a reminder, the strengthening of the European currencies favorably impacts revenue, but has a less significant impact on operating profit due to the company's hedging programs. As we stated at the beginning of the year, a 5% movement in the European currencies would impact revenue by approximately $55 million on a full year basis but would only impact operating profit by about $7 million.

The second quarter operating margin, excluding restructuring expenses, declined approximately 80 basis points from the same period last year, as the negative currency impact, higher spending on initiatives and Travelex costs offset operating efficiencies, including restructuring savings and revenue leverage. We recorded $9 million of restructuring expenses in the quarter related to our previously announced programs. Approximately $500,000 of expense is included in cost of services and $8.4 million is in SG&A. This compares to $35 million in restructuring charges in the second quarter of 2010. These charges are not included in our segment operating results.

For the full year, we now expect approximately $45 million of pretax restructuring charges, which is slightly lower than our previous estimate of approximately $50 million. We continue to expect approximately $50 million related savings for the year and $70 million in 2012. We realized $30 million of savings from restructuring activities in the quarter. We recorded a $29 million gain in other income and expense in the quarter. This gain reflects the remeasurement of our previous 30% equity interest in Angelo Costa upon closing of the acquisition.

The tax rate in the quarter was 21.1%, or 21.4% excluding the impacts of the restructuring charges, which compares to 18.8%, or 20.7% excluding restructuring charges in the second quarter of last year. Our full year estimated tax rate is now in a range of 23% to 24%, down from our previous range of 24% to 25%, primarily due to the resolution of certain foreign tax matters. Earnings per share in the quarter were $0.41, or $0.42 excluding restructuring charges. GAAP EPS was $0.33 in the second quarter of last year, or $0.36 excluding restructuring charges.

Our C2C segment operating margin in the quarter was 28.6% compared to 29.1% in the same period last year. The decrease was due to the impact of currency and higher spending on initiatives, which offset other efficiencies, including restructuring savings and revenue leverage. Global Business Payments operating margins was 19.9% in the quarter, which compared to 18.9% in the second quarter of 2010. The margin improved compared to last year, primarily due to revenue increases, restructuring savings and lower integration and investment spending in Western Union Business Solutions. We continue to expect Business Solutions to be non-dilutive to earnings for the full year.

Moving to our cash flow and balance sheet. Year-to-date cash flow from operations was $506 million, and capital expenditures were $75 million. Our year-to-date depreciation and amortization expense was approximately $90 million. At quarter end, the company had total debt of $3.6 billion and cash of $2.1 billion, of which approximately $1.1 billion was outside the United States. In the quarter, we spent $135 million to repurchase 6.6 million shares or 1% of the total shares outstanding at an average price of $20.35. We also paid $50 million in quarterly dividends. As of June 30, we have $755 million remaining under our stock repurchase authorization, which expires on December 31, 2012. Also, as of June 30, our basic shares outstanding were 627.5 million shares. We continue to manage our capital structure to target an A- credit rating.

Turning to our expectations for the full year. We are raising the outlook for both revenue and earnings per share. In revenue, our outlook now calls for constant currency revenue growth in a range of 4% to 5%, and GAAP revenue growth in a range of 5% to 6%. This compares to our previous outlook of 3% to 4% constant currency growth, with no impact from foreign exchange. Constant currency revenue is benefiting from better-than-expected revenue per transaction, driven by higher principal per transaction and slightly lower pricing reductions than originally forecast. We have also changed our currency assumptions to reflect current foreign exchange outlooks around the globe. As an example, we are now projecting the euro in the lower 1.40s, compared to the low 1.30s in our February and April outlook. Our outlook does not include any revenue from Travelex Global Business Payments, which is expected to close late this year. For earnings per share, the new outlook is GAAP EPS in a range of $1.48 to $1.53, and EPS excluding restructuring charges of $1.53 to $1.58. The 2011 projected GAAP EPS range has increased by $0.07 compared to our previously stated outlook. And the EPS range, excluding restructuring expenses, has increased by $0.06. Restructuring expenses are now slightly lower than expected at $45 million, down from approximately $50 million previously.

Excluding restructuring expenses, there are 4 primary drivers of the $0.06 increase in EPS. First, there's a $0.02 per share positive impact from the increase in constant currency revenue. Second, there's a $0.01 positive impact from the additional 1% increase in GAAP revenue due to currency translation, net of a partial offset from hedges. Third, there is a $0.01 positive impact from acquisition activity not included in the April outlook. And finally, the current outlook reflects a positive $0.02 impact from a 1% reduction in expected tax rate range. The current range is 23% to 24%, which is down from the prior range of 24% to 25%. The $0.01 acquisition impact is derived from the combination of Angelo Costa, Finint and Travelex. We are projecting a $0.02 benefit from an anticipated second half gain on our previous 30% ownership position in Finint and a $0.01 higher-than-expected benefit from Angelo Costa acquisition. These benefits are partially offset by a negative $0.02 impact from the deal costs related to Travelex. Other than the impact of the Travelex deal costs and the negative impact of foreign exchange, our operating margin outlook remains similar to the April outlook.

The current GAAP operating margin outlook is in a range of 25% to 25.5%, including Travelex deal costs of approximately $15 million. Operating margins, excluding restructuring charges, are now projected at a range of 26% to 26.5%. On a constant currency basis, these margins are projected at 26.5% to 27%, including the Travelex deal costs. We are still projecting full year marketing expense similar to last year at approximately 4% of revenue. However, our second half timing will differ as we have extensive marketing plans for the third quarter. We expect marketing expense to be around 5% in this year's third quarter compared to about 3.7% in 2010 and then to be lower in the fourth quarter. Consequently, our fourth quarter operating margins are projected to be higher than the third quarter. The gains from the Angelo Costa and Finint are recorded in other income and therefore, not included in operating margins. GAAP cash flows from operating activities are expected to be at the lower end of our previous range of $1.2 billion to $1.3 billion for the year. Compared to 2010, operating cash flows are being negatively impacted by changes in working capital.

Two factors are impacting the working capital comparison. First, in 2011, we will spend the major portion of the cash relating to the restructuring charges incurred in both years. The cash outflows associated with almost half -- the cash outflows associated with almost all the 2011 restructuring charges of $45 million and over half of the 2010 restructuring charges of $60 million will be paid in 2011. The second item impacting working capital relates to an inflow in 2010 that will not reoccur to the same extent in 2011. Specifically, we realized a significant cash inflow in 2010 relating to closing out interest rate swaps when we completed our debt exchange in the first quarter of last year. Also, as a reminder, the gains recorded on Costa and Finint in 2011 are noncash items. In 2012, we do not expect to be impacted by these working capital items, as payments from restructuring activities will be largely complete by the end of this year.

In summary, we are comfortable increasing our full year revenue and earnings per share outlook based on our first half performance and our expectations for the remainder of the year. We will continue to execute against our strategies, deploy cash against investments in the business, strategic acquisitions and share buyback and dividends and target a strong balance sheet.

Operator, we're now ready to take questions.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Tien-Tsin Huang of JPMorgan.

Tien-Tsin Huang - JP Morgan Chase & Co

Just on the guidance range and the raise there, I'm happy to see that, obviously, there's a lot of words out there about Europe. I'm just curious, Hikmet or Scott, what gives you the confidence that Europe is not going to get worse and potentially impact the guidance here? I'm wondering if PSD alone is enough to carry through any negative surprises in the region.

Hikmet Ersek

Tien-Tsin, if you look at Europe, I think we are very pleased with the numbers. I mean Germany is doing very well. Russia and France are also doing very well. Being in all countries in Europe, being in -- and actually being in 200 countries worldwide give us the comfort that every country has their own dynamics. And generally, we are pretty well positioned in Europe. There are always some issues in some countries. But I would say, our position is very well in Europe and we are growing the business. There will be different -- in different countries, different dynamics, but I would say that we are very well positioned in Europe. And regarding PSD, it's not only PSD -- I mean, as you know, we have PSD locations and we are comfortable with our outlook, 1% additional incremental revenue coming from PSD. We have about 3,500 locations active there and their productivity is quite high. They do good revenue. But we have also, post offices and the banks and we are expanding our presence. We recently signed also Banca Intesa Sanpaolo with ATM transactions where customers can go to an ATM and send money from the ATM or from their accounts. So I think Europe is pretty well.

Tien-Tsin Huang - JP Morgan Chase & Co

Very good. This is my quick follow-up, the Bill Payment business that did turn up. I think, as you suggested last quarter -- the question that I have is, is this fix permanent, meaning is the growth sustainable here going forward?

Hikmet Ersek

Well I think, as I mentioned previously, the team is doing good, signing new billers. We do have the right marketing activities on place. Definitely, economic environment always helps us, right? But we started to diversify our billers and we see the first impact here. Now it's early to say, how -- I will be cautiously optimistic here, Tien-Tsin. I think we see early signs the team is doing great job, and so it's good.

Operator

Your next question comes from the line of Kartik Mehta of Northcoast Research.

Kartik Mehta - Northcoast Research

Hikmet, I wanted to get your thoughts on the prepaid market. Obviously, it continues to evolve and the new rules that are in place will obviously have banks make different decisions. And I'm wondering how Western Union will evolve its prepaid business in this changing environment?

Hikmet Ersek

I think if you look at our prepaid business cards, as I said before, we are in the U.S. only, a little bit of, what, a year active, right? We have about 1.1 million cards, and we have 12,000 locations. Now our sales could be better. We were estimating about -- doubling our card numbers than last year, but the activities on the cards are pretty good. So we are assuming 1% of our revenue will come from prepaid cards. Now our activities in the U.S. will continue. We will be having -- getting new retail sales here, but I also see opportunity in international. Next one is definitely the U.K., the team is focused to expand our prepaid activities in the U.K., our stored value, and other countries to come. But it's a market and market initiative and it takes some time to put your interest in the market, to understand the market and grow into market. And it has to be a good profitable business and we are focused where we do good revenue growth and similar profit margins that we have in our core business.

Scott Scheirman

And Kartik, the only thing I would add is that from a consumer value proposition, we're very focused on being fee-friendly and with the strength of the brand in the distribution, not only U.S., but globally. We believe on a long-term basis that, that's a winning combination for us.

Kartik Mehta - Northcoast Research

And then, just as a follow-up, on the C2C side, Scott, you said higher spending initiative. Does that mean just price reduction? And what could those initiatives means to C2C margins for 2011?

Scott Scheirman

Overall, for -- on a consolidated basis, we're calling for margins to be up in 2011 compared to 2010, excluding the restructuring charges. Specifically, in the third quarter, we're going to spend some more money on not marketing. So the margins in the third quarter will be a little bit lower, but margins will be higher in the fourth quarter. But really making investments to drive the top line growth as we move forward. Keep in mind, on a full year basis, Kartik, the marketing spend will be about 4% of our top line, which is generally consistent with 2010. But overall, we're on pace to expand our margins on a consolidated basis in 2011.

Michael Salop

And Kartik, we had higher spending in our initiatives factored into our original outlook. So it's really when you're looking at change right now, it's only just currency that's negatively impacting the margins.

Kartik Mehta - Northcoast Research

And so -- it sounds like higher spending initiatives means more marketing, not price reductions, is that the right conclusion?

Scott Scheirman

Yes, I would say it would be around marketing, other investments we make. As you may recall on pricing, the original outlook had pricing in that 2% to 3% range and now we're closer to a 1% to 2% range. So it's not more pricing.

Operator

Your next question comes from the line of Darrin Peller of Barclays.

Darrin Peller - Barclays Capital

First question on the margin front, again, just the business segment, the Global Payments segment, obviously, had a very nice pickup on the margin. Is that, first of all, associated with the bill pay strength and the mix from that? And it sounds like -- you're at least cautiously optimistic that would be sustainable. So obviously, that should be impactful to the margin as well?

Scott Scheirman

Yes, things that are helpful to that margin. We're pleased with it being at 20%, if you will. It's up from the prior year and up from the first quarter, too. Clearly, having 4% top line growth on Global Business Payments and then purely, the bill pay business had 2% top line growth. So that is helpful from that standpoint. We did have some restructuring savings and then some of the integration and investment spending in the Western Union Business Solutions has come in a little bit lower, if you will, as we anniversary some things there. So overall, we're pleased with a 20% margin. And clearly, that's up from where we were at a low point in the fourth quarter.

Darrin Peller - Barclays Capital

Right. And so if you think about that margin going forward, and that being somewhat sustainable ideally -- I mean, the C2C margin was obviously, impacted a lot by currency. First of all, what was the actual currency? I don't know if you said already, the currency impact specifically on this quarter's margin?

Scott Scheirman

We didn't provide a specific number but how I'd have you think about it is, we recorded a $32 million in, I'll call it, additional revenue because of currency translation. But the profit impact on that was significantly less. The full year metric, I would give you, Darrin, is back to the 5% movement in European currency is $55 million of revenue, $7 million of profit. So the margin on that analogy is about only 13%.

Darrin Peller - Barclays Capital

Right. Now just because, I mean, all-in, Scott, I mean, you have 26.5% to 27% constant currency margin guidance for the year, which is pretty similar to what the guidance you had before. Obviously, the impact, I would think, is mostly the 30 basis points or so from Travelex deal costs. And so theoretically, if you added back Travelex, you'd have about a 26.8% to over 20% -- 27% margin guidance for the year and I would imagine some of that's just benefit from the strength you're seeing again, finally, in the bill pay segment being a positive.

Scott Scheirman

The bill payment has definitely been helpful. And then I agree with your math, if you will, that what's impacting the full year margin is the -- roughly the 30 basis points or $15 million from the Travelex deal costs.

Hikmet Ersek

I think, Darrin, the math you put together is right on.

Darrin Peller - Barclays Capital

Great. And then just one more follow-up, if you don't mind. The spread between the transaction growth and revenue growth looks pretty good. I mean, international transaction growth was 5% at constant currency revenue growth, 5%. It looks like the spread between the 2 is tightened than -- versus prior quarters. I think you alluded to pricing being about a 1% to 2% adverse impact. I mean, is this less of a better environment from a pricing standpoint than, I think, you've seen in the past?

Operator

Ladies and gentlemen, please standby.

[Technical Difficulty]

Darrin Peller - Barclays Capital

Look, I was just trying to get some color on the pricing environment. Obviously, it looks like it's turning in the right direction based on the spread, and I think you alluded to about a 1% to 2% adverse impact on pricing. Is that -- is it a better environment now than it's been in the past? I mean, is it fair to say that? I mean, you said, 1% to 3% going forward. Can you just comment there real quickly?

Hikmet Ersek

Sure, Darrin. I mean, we stated 1% to 3% going forward. We do have a -- the pricing is a little bit seasonality, competition, geographical mix, and we currently see that we will -- for the full year, 1% to 2%, where we feel comfortable. We continue to gain market share with that, and we're going to continue to pricing investments, 1% to 3%, where we gain long-term revenue growth. So that will continue.

Darrin Peller - Barclays Capital

Okay, all right. And just if you don't mind, last question on the buyback front, you had a nice first quarter with 500-plus million share -- dollars worth of buy back. Second quarter, I guess, had an adverse impact -- or you couldn't do as much because of the Travelex deal, still that over $100 million, should we expect a nice sort of aggressive buyback to continue now that the Travelex announcement came? And I'll leave you with that.

Scott Scheirman

No, Darrin, this is Scott. We believe investing in our stock, if you will, is a good investment and you're familiar with our capital allocation policies of investing in our business and returning cash to our shareholders. So we will continue to be active in doing that. Through December of '12, we have roughly $750 million authorized, so we'll continue to look forward to both investing in the business and returning cash to our shareholders.

Operator

Your next question comes from the line of David Togut of Evercore Partners.

David Togut - Evercore Partners Inc.

Two quick questions. First, Scott, in your upgraded guidance for this year, are you including the $0.03 second quarter gain in other income?

Scott Scheirman

Yes. Half of that is included in that. At the beginning of February when we originally gave the outlook, David, we felt Costa would have a net $0.01 positive impact to the full year. Now we believe it's a net $0.02 positive impact. So it's really about a $0.03 gain offset by about $0.01 of integration and other costs related to that deal.

David Togut - Evercore Partners Inc.

And that's just from the mark-up of your stake from -- your initial stake from buying out the rest of it?

Scott Scheirman

Correct. Under the GAAP accounting rules, when we went from a 30% ownership to 100% ownership, the GAAP rules requires a revaluation of that 30% interest, which generated approximately a $29 million gain in the second quarter on a pretax basis.

David Togut - Evercore Partners Inc.

I see. And just a quick follow-up on capital allocation. Following the Travelex deal, can you give us a sense of what your dividend policy will be for 2012?

Scott Scheirman

We continue to want to be balanced in returning our cash to shareholders. I think over the last 12 months, you've seen us do a couple of dividend increases so periodically, the management team will review that. We'll spend time with our board, but our aim would be continue to return capital to our shareholders through buyback, but also -- and it aims towards as the business performs, ideally, increasing the dividend, but we'll have to wait and see as we move through that. But we clearly, want to balance the payback to the shareholders.

Operator

Your next question comes from the line of Ashwin Shirvaikar of Citi.

Ashwin Shirvaikar - Citigroup Inc

My first question is, Scott, you mentioned, obviously, operating cash flow at the lower end of the prior range. Can you talk about the -- and that's primarily due to -- or a big factor there is the higher cash restructuring, can you talk about the forward-looking benefit from the 2 sets of restructuring? What should we expect for that on margins?

Scott Scheirman

Was the question on the margins, Ashwin?

Ashwin Shirvaikar - Citigroup Inc

Yes, with regards to the -- specifically forward-looking benefit of the restructuring.

Scott Scheirman

Sure. Absolutely. Just to recap, the P&L benefit from the restructuring will be about $50 million of savings in 2011, and that, that will annualize a run rate into about $70 million into 2012. Our objective, as a management team, is to expand our margins as we move forward. We believe we've got a business model that we can drive leverage with growth in revenue, 65% of our costs are fixed, 35% are variable, so the revenue leverage, if you will, the restructuring savings or productivity savings will be helpful. And then, probably a little bit of offset there with investing in the business to grow it. But clearly, as a management team, our objective is to grow our margins.

Ashwin Shirvaikar - Citigroup Inc

Right. And speaking of those investments and the impact that can have on market share gain, the market share gain of 50 basis points in 2010, obviously, a good number, the historical number has been more closer, I guess, to 100 basis points, if I'm not mistaken. Can you reaccelerate that with all the investments you're making, and specifically, what areas?

Scott Scheirman

That would be our objective, is to continue to gain market share and gain market share at an accelerated pace and where we've been making investments is both in the core business, but also investing behind electronic channels where we think there's a little bit of a different customer segment there with westernunion.com, account-based money transfer and mobile phone money transfer. So we believe there's opportunities, not only to grow the retail channels, but we're adding PSD locations in Europe, banks in the U.S. but then moving forward with the initiatives in the electronic channels, too. So hopefully, all those things with the objective, is to gain share at an increased pace.

Hikmet Ersek

Yes. I think -- just to add on that. With all these new channels and with all our initiatives, we are not growing and gaining market share only on our core money transfer and core customer segment, but we are gaining new customer segments with electronic channels. And also, with our B2B activities now, combining business solutions with Travelex, we are really entering some new customer segment. There's a need, and I think there will be a growth here also, so I'm very excited about the future.

Operator

Your next question comes from the line of Jim Kissane of Bank of America Merrill Lynch.

James Kissane - BofA Merrill Lynch

Scott, I thought your pricing comments were very positive. Can you point to some of the regions where pricing is more favorable that's offsetting some of the pressure in Mexico?

Hikmet Ersek

Well, if you look at our business being 16,000 corridors and none of the countries are bigger out of the U.S., bigger than 6%. It's really differentiates from country to country and from bank to bank, actually within the thing. The beauty of our business, the beauty of our management is that we are really managing 16,000 pricing actions actually within the different banks. So I think it differentiates from country to country, from corridor to corridor. The good stable growth in the European business, we do increase. In the Gulf States, Gulf States start coming back are also in the receiving center are China and India business are growing double digit. So I think we are doing -- we really react to the market needs and the environment -- on the competitive environment.

James Kissane - BofA Merrill Lynch

And any comment on trends in C2C commissions? And if you look back, has integrating FEXCO helped C2C margins and as you look forward, the impact that Angelo Costa and Finint will have you integrate those?

Hikmet Ersek

I think, yes. I think we are very focused on the margin side, on the commission side, both we have now direct access with the PSD, direct to the sub-agents and I think that will help out also our long-term or our commission rates. And as you look at our agent negotiations, it has -- end of date has to be a win-win situation though, right? Agents have to win and we have to win. But we look at our position being in so many countries and having so many agents. I think we are in a very good position that having favorable commissions for Western Union.

Operator

Your next question comes from the line of Andrew Jeffrey of SunTrust.

Andrew Jeffrey - SunTrust Robinson Humphrey, Inc.

So it's nice to see some of the global economic trends creating a bit of a tailwind for your business, namely the principal per transaction, whereas transaction volume growth is held kind of steady. Should we think about this as kind of a cyclical or macroeconomic kind of evolution whereby you see the principal increase first and then the transaction volume follows? Or how are you thinking about the sustainability of transaction growth over the -- or the potential for acceleration over the next several quarters?

Hikmet Ersek

I wouldn't say that -- it's hard to make a global formula out of it. It really differentiates from region to region, from country to country, right? We do see in some regions higher revenue per transaction activities, that the consumer confidence increase some sent countries. But on other sent countries, I think to say the transactions are stable and revenue of our transaction is still the same. If you want to put it in a global formula, we do see revenue per transaction increase, which makes us -- we are very pleased on that, right? And also, as I mentioned earlier, on the pricing investment, we are probably going to have 1% to 2% pricing investment this year instead of 2% to 3%. So these are good signs. Though the economic state is challenging, I'm not seeing a big change on the economic environment globally. I think the management is very focused despite the economic -- continued economic challenges. The marketing activities on the market is pretty well to respond to the customer needs.

Andrew Jeffrey - SunTrust Robinson Humphrey, Inc.

Okay. And then as a follow-up, I thought the Regions deal was a particularly important one on 2 fronts, both the expedited bill pay piece. I'm wondering if you can just comment on the competitive environment there. And then also, in terms of potentially turning on account-to-cash, can you just give us a sense of where you are in that product in the U.S.? Should we start to see more banks kind of initiate account-to-cash solutions powered by Western Union in the back half of '11 as we look out into '12?

Hikmet Ersek

I would say, long term, yes, definitely, Andrew. You will see that not only powered by Western Union, I think it's branded by Western Union that we are growing. But we did -- we have these activities now globally. We have about 60 banks, 30 of them we activated to make account-based transaction and each win is definitely -- the Regions Bank, and I believe with the our banking, U.S. banking strategy, we will get more banks. We have more banks in line to get them, starting with the retail money transfer and working on allocation and doing transaction, adding also account-based money transfer to give convenience to the consumers. It's definitely something we did with the U.S. Bank, and now the Regions Bank is online and other banks is to follow.

Operator

Your next question comes from the line of Tim Willi of Wells Fargo.

Timothy Willi - Wells Fargo Securities, LLC

Two questions. The first one, just going back to the pricing commentary. Is there, in your opinion, just sort of tie that into the competitive dynamic and the 16,000 corridors that you manage? Are you seeing anything on the competitive front that maybe gives you more confidence in terms of managing pricing and maybe not having to discount as much as you would have thought when the year started, the competitive position has improved to that degree or competitors have weakened more than you have thought?

Hikmet Ersek

I would say, competition is still on the market and that has got to keep us fit. Probably, our reaction are being more intelligent, more closer to the market to give us the capability to adapt our pricing and being active in the market and that's why we are gaining market share. As I mentioned before, Aite just came out with the recent statistics and it looks like we, again, gained about 0.5% market share versus 2009. So these are good news. Generally, competition is here, continuous, especially the corridors, especially start active also brand is one. But in different corridors, we have very strong competition. However, people start to understand, being in 200 countries, as you mentioned, and having 470,000 locations, you can send from one point to 16,000 corridors immediately money. I think nobody can match that, delivering in 470,000 locations. So this gives us definitely an advantage, competitive advantage, and we are going to grow this brand, network, electronic channel. I think we have a good position to be more active and being competitive price.

Scott Scheirman

And I would add, it's always been a competitive environment out there, Tim. We continue to gain share, as Hikmet mentioned, and pricing, as we do pricing, it's one of the drivers we look at to gain share, promoting the brand, adding locations or distribution and differentiating the product. And then, as we do pricing, what we think about is pricing elasticity, what's the best thing to do to maximize long-term revenue growth and customers coming back to the franchise.

Timothy Willi - Wells Fargo Securities, LLC

Okay. And then my follow-up was just around the tax rate. As we think about the slightly lower tax rate this year, is it something structurally and sort of your profit mix in your tax strategy that we should think about that flowing through in the out years? Or would this be just sort of an '11 type tax rate when we consider our models for '12 and '13?

Scott Scheirman

Two comments on that, Tim. One is, I would say, this one item is more of an '11 item, if you will. We resolved certain international tax items, so we were -- have somewhat of a small favorable benefit, expect a small favorable benefit in '11. Although, as we think about the tax rate on the longer-term basis, that as the international business, which I believe will grow faster than the U.S. business, the international profits are generally taxed at a lower rate, so that will be somewhat helpful to our tax rate on a long-term basis.

Operator

Your next question comes from the line of Meghna Ladha of Susquehanna.

[Technical Difficulty]

Meghna Ladha - Susquehanna Financial Group, LLLP

So in general, Hikmet, what do you see as the 2 or 3 key levers to manage your margins? And how should we balance these initiatives versus growth post 2011?

Hikmet Ersek

I think, I'm definitely looking for a long-term margin increase. And I think our business model is built for that. The revenue growth, obviously, helps to increase the margin. The top line is the best indicator for that, and we are very much focused for the growth. Given our core money transfer business is growing, given also our initiatives on the SME business with the growth opportunities for the future, I believe that's the one thing. The other thing is, we are also focused on our commission rates, right? Agent commission rates, which are very low costs and we do look at long term, long relationships with the agents and having a favorable commission rates for both -- [indiscernible] for both but favorable for Western Union given our global presence. And the third one is, Scott can give you a little bit more color on that, is our fixed cost structure. I think we are also pretty much focused on this -- our processes, our initiatives, we have corporate initiatives to focus on our fixed costs. We have operating centers globally, we have people, very effective people in a very cost friendly environment. So these are the major initiatives. Anything, Scott?

Scott Scheirman

No, just to add, it's really growing the top line revenue as Hikmet mentioned. 65% of the costs are variable, 35% are fixed, so we have a natural way to move margins up there. And then, one of our key strategies is improving our processes and productivity. And over the long term, we believe there's additional opportunities to create efficiencies, even further improve customer satisfaction and get to highly efficient and effective processes that we believe will be helpful on a go-forward basis.

Operator

Your final question comes from the line of Julio Quinteros of Goldman Sachs.

Roman Leal - Goldman Sachs Group Inc.

This is actually Roman Leal sitting in for Julio. The first question on -- which is kind of on pricing, what specifically motivates you to introduce that pricing initiative in Mexico versus other corridors? Does it make sense to introduce that elsewhere around the globe? And how much of that is kind of baked into your 1% to 3% pricing kind of guidance for the next few years?

Hikmet Ersek

On the pricing initiative, generally, we really look market by market. I wouldn't draw a global rollout of it at 5 -- introducing $5 for $50 in one market, implements also by other markets. Don't forget also is that the $5 for $50 in some currencies, some different than dollar currencies. So I believe there are certain customer segment, which we do look corridor by corridor and understand the environment. So I would say that, the pricing initiative, 1% to 2% is for 2011, and we do keep the flexibility on an investment, 1% to 3% long term to understand the environment.

Roman Leal - Goldman Sachs Group Inc.

Okay. And on prepaid, I know you mentioned you're kind of progressing nicely here with some potential partnerships. Are you looking more for -- to expand your current locations? Or is this perhaps something where you could -- you can push more aggressively to open your reload network to third-party prepaid for managers?

Hikmet Ersek

In the U.S., we currently have about 12,000 locations and some of the locations are -- have exclusivity with the competition, that's why we are kind of locked to expand our distribution. But when time comes we're going to get some also on our distribution channels to sell more cards. Generally, I would say, that I'm very open to reload the cards. Our network is ideal. Also, international, I believe, given the 470,000 locations. We are in a very well position to sell more cards than -- load more cards and be active with more cards.

Okay. I just wanted to say thank you for all questions, and I would like to summarize the quarter. And seeing -- if we summarize the quarter, you'll see that our business is solid and we are very comfortable to raise our revenue and earnings per share outlook at this time for 2011. Longer term, we have continue -- have opportunities to grow our core money transfer business, both in cash, retail money transfer and electronic channels. And also, the pending acquisition of Travelex Global Business Payments, combining with Western Union Business Solutions, will give us a very strong second leg to expand to new customer segments. And we will continue to be active returning funds back to the shareholders through share repurchase and through dividends. So thank you very much. Thanks for joining the call, and I wish you all a great day. Thanks.

Operator

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a wonderful day.

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