MoneyGram International Inc. (MGI - Analyst Report) reported fourth-quarter 2014 operating earnings per share (EPS) of 13 cents, which lagged the Zacks Consensus Estimate of 19 cents by 31.6%. This brings the trailing four-quarter average earnings miss to 21.3%.

EPS also witnessed a drastic fall from the year-ago quarter figure of 35 cents. The market’s negative response was reflected in the 8.7% fall in the stock price following the earnings release.

Including adjustments, reported net income tanked to $10.5 million or 17 cents per share against $23.4 million or 33 cents per share in the year-ago quarter. The company also incurred a litigation liability worth $11 million during the reported quarter.

MoneyGram’s total revenue for the quarter was $349.6 million, down 9.4% from the year-ago period. While fee and other revenues decreased 9.2% to $346.7 million, investment revenues stood at $2.9 million, significantly down from $4.1 million in the year-ago period.

Total operating expenses rose 2.9% year over year to $352.6 million. Total commission expense declined 9.1% to $159.5 million. Subsequently, operating loss widened to $3 million against an income of $43 million in the year-ago quarter.

Interest expense also increased 15% from the prior year to $11.5 million. Total earnings before interest, taxes, depreciation and amortization (EBITDA) declined 27.9% year over year to $49.9 million, while adjusted EBITDA fell 22.5% to $59.2 million.

Quarterly Segment Results

In the Global Funds Transfer segment, revenues fell 9.5% year over year to $330.6 million. Money transfer transaction volume decreased 2%, while money transfer fee and other revenues declined 10.1% year over year to $305.7 million. Further, global agent locations improved 4% from the prior-year quarter to 350,000.

Total money transfer transactions originating outside the U.S. climbed 12% from the prior-year quarter. Additionally, U.S. outbound transaction increased 14%, reflecting double-digit growth for the 13th consecutive quarter, and driven by 14% growth in transactions to Mexico from the U.S. The company now enjoys about 17% market share in Mexico.

Notably, MoneyGram’s transactions originating in the U.S. decreased 40% year over year due to decline in transactions originated at U.S-to-U.S. transactions at Wal-Mart Stores Inc. (WMT - Analyst Report). Excluding the Walmart business, however, money transfer revenues grew 2% from the year-ago quarter, while money transactions rose 12%.

Self-service money transfer revenues surged 32% from the prior-year quarter, representing 9% of money transfer revenues. Moreover, MoneyGram’s online money transfer transactions grew 23%, while revenues jumped 17% from the prior-year quarter. Bill payment fee and other revenues decreased 2% to $24.9 million.

As a result of lower revenues and higher expenses, adjusted operating margin deteriorated to 7.5% from 12.6% in the prior-year quarter.

In the Financial Paper Products segment, MoneyGram’s total revenue fell 7.3% year over year to $19 million, reflecting lower fee, other and investment  revenues within both money order and official check sub-segments. Meanwhile, adjusted operating margin improved to 38.9% from 30.2% in the year-ago quarter, as commission expense remained flat.

Liquidity

As of Dec 31, 2014, MoneyGram had cash and cash equivalents of $250.6 million (down from $318.8 million at 2013-end) and total assets of $4.64 billion (down from $4.79 billion). The company exited 2014 with $966.6 million of outstanding debt (up from $842.9 million at 2013-end).

Adjusted free cash flow plunged about 67% year over year to $50 million in 2014, primarily due to higher investments in the global transformation program and increased signing bonuses.

Outlook

MoneyGram expects to rebound to double-digit growth in revenues and EBITDA by fourth-quarter 2015. For full-year 2015, revenues are estimated to be flat on a constant currency basis, while EBITDA is anticipated to fall by 8–12%. The projections reflect the cannibalization from Walmart’s while-label product and its low price chart in U.S.-to-U.S. money transfer transaction fees in 2014. Currency translations are expected to have a 3% negative impact on the reported results.

Moreover, litigation settlements from Internal Revenue Services (with respect to the tax treatment on certain securities losses) in tax expenses worth $70 million will be incurred in first-quarter 2015, while another cash expense worth $60 million is expected in second-half 2015.

Global Transformation Program

MoneyGram targets to enhance operating efficiencies, realign certain businesses and reduce costs, all of which should result in annual pre-tax cost savings at a run-rate of about $20 million by 2015-end. In this regard, the company now projects to incur cash outlay of about $40 million through 2015, of which $12.9 million was recorded in the reported quarter. Meanwhile, MoneyGram incurred costs from its compliance enhancement program worth $30.5 million in 2014.

Zacks Rank

Currently, MoneyGram carries a Zacks Rank #4 (Sell).

Stocks to Consider

Better-ranked stocks in the financial sector like General Finance Corporation (GFN - Snapshot Report) and Ladder Capital Corp (LADR - Snapshot Report), both of which have a Zacks Rank #1 (Strong Buy), are worth reckoning.