--Transaction and revenue growth weakens in North America and Europe

--Company saw growth from westernunion.com digital business

--Company trying to take a bigger piece of the business-payments market

(Updated with new details throughout.)

   By Andrew R. Johnson and Victoria Stilwell

Western Union Co.'s (WU) second-quarter profit rose 3% on higher revenue and an increase in transactions at its consumer money-transfer business, though transaction volume and sales growth weakened across several business segments.

The world's largest provider of remittances saw much of the deterioration in its European consumer-payments business, where both transaction volume and revenue declined from a year earlier. Its North American consumer region also saw flat revenue growth, though that was partially offset by solid performance in Latin America and the Caribbean regions.

Ongoing economic problems in Europe and stagnant U.S. employment trends have cast a pall over payments companies in recent months, sparking concerns over prospects for consumer spending. Western Union is particularly sensitive to swings in the economy, as its services are primarily used by consumers to send money to customers typically in foreign locations.

Western Union had recently seen results improve as the U.S. shows signs of a tenuous recovery from the recent financial crisis. Payment transfer activity has been on the rise, and the company is expanding its world-wide presence. The company in May unveiled a deal with Allianz SE (ALV.XE) to develop and distribute insurance products in locations such as the Middle East and Africa.

The Englewood, Colo., company, which sells its services through a network of agents that include grocery stores, pharmacies, check-cashing stores and banks, has also been trying to diversify by investing more heavily in services geared toward small and medium-sized businesses and new online services intended to capture consumers' growing comfort with performing financial transactions online. Both those efforts gained traction in the second quarter, with transaction activity from its westernunion.com business growing 35%.

About 80% of customers who use westernunion.com to make a money transfer, pay bills or perform other functions are new to the company, Western Union said in May. The business generated about $100 million in revenue in 2011, and President and Chief Executive Officer Hikmet Ersek has set a target of $500 million in revenue by 2015.

Western Union raised its earnings outlook for the full year, now seeing earnings per-share in the range of $1.68 to $1.72, up from a previous outlook of $1.65 to $1.70. It raised its adjusted earnings per-share estimate to $1.73 to $1.77 per share, up from an earlier prediction of $1.70 to $1.75 per share.

Business-related payments, which represent 6% of Western Union's revenue today, have become a bigger focus for the company, which bought the business-to-business payments unit of Travelex Holdings Ltd. in November for about $970 million. The company is trying to capture more business from small and medium-sized enterprises that need to send money to partners overseas.

For its second quarter, Western Union reported a profit of $271.2 million, or 44 cents a share, up from $263.2 million, or 41 cents a share, a year earlier. Excluding Travelex integration-related expenses, earnings were 46 cents a share versus 42 cents a share a year earlier. Revenue increased 4.3% to $1.43 billion.

Analysts surveyed by Thomson Reuters recently expected a per-share profit of 43 cents on revenue of $1.45 billion.

Operating margin narrowed to 24.3% from 25.7%.

In the company's consumer-to-consumer segment, its largest business, revenue was roughly flat as transactions increased about 4%. The segment grew 3% on constant currency.

Consumer-to-business revenue declined 2.7%. Business solutions revenue almost tripled.

Shares closed Monday at $16.95 and were up 0.9% at $17.10 in recent premarket trading. The stock is off 12% in the last 12 months.

Write to Andrew R. Johnson at andrew.r.johnson@dowjones.com and Victoria Stilwell at Victoria.Stilwell@dowjones.com

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