Since the earnings release on May 2, money transfer company Western Union Co. WU has lost 6.1%, in stark contrast to the gain of 0.5% of the Zacks categorized Financial Transaction Services industry.

What Has Made the Shares Bleed?

Change in share price reflects the performance of a company and the factors affecting it.

In the case of Western Union, shares seem to have taken a beating from the lackluster first-quarter earnings performance, which disappointed investors. Earnings in the quarter missed estimates by 12.5% and declined 5.4% year over year.

The stock must have suffered from a bleak top-line outlook which forecasts revenue growth at flat to down low single digits due to a strong U.S. dollar, continued softness in oil markets and a number of global economic issues.

Other Factors Affecting the Stock

Western Union has been facing compliance-related issues, which have resulted in several charges. After paying up 3.6% of revenues in 2016 as compliance charges, the company spent 3.7% in the first quarter of 2017. The company expects the same to be at the high end of the 3.5%-4% of revenues range in full-year 2017.

The company also coughed up $151 million to settle legal charges leveled by federal and state governments. It also has to pay the remaining $440 million of settlement charges in the second quarter. High compliance and investment costs are likely to weigh on the company’s bottom line.

Intensifying Competition: The recent acquisition of Xoom by PayPal Hodings, Inc. PYPL poses competitive threat to Western Union. The combined entity has a significant presence in the digital money transfer market, where Western Union is fast catching up by making substantial investments.

Also, the ongoing merger between Moneygram International Inc. MGI and Ant Financial, an affiliate of Chinese Alibaba Group Holdings Ltd. BABA, will boost the market position of Moneygram, which has so far been lagging Western Union. The company commands a premium price in the market by virtue of its brand, reliability and almost monopolistic hold. However, consolidation within the industry might pose stiff competitive challenge to Western Union.

Global Headwinds and Forex Volatility: The company is faced with a number of global economic headwinds, including foreign exchange volatility, low oil prices and weakness in some of the economies, which have been limiting profits. Remittance flows from the oil producing countries will continue to be affected by the persistent weakness in oil price, thereby hurting revenues in the Middle East and Africa as well as part of Asia Pacific.

Notably, management expects the overall macro scenario in 2017 to be largely in line with 2016 levels, thanks to persistent challenges like the strengthening of the U.S. dollar, soft economic conditions in oil producing nations and uncertainty in the global geopolitical environment.

The impact of currency translation, net of hedge benefits, impacted first-quarter 2017 revenues by approximately $30 million as compared to the prior year. It expects adverse foreign exchange translation to have a 9-cent impact on earning per share in full-year 2017.

Given the adverse factors, we don’t expect this Zacks Rank #3 (Hold) stock to turn around anytime soon. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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