Dun & Bradstreet Corp. (
reported fourth-quarter 2012 earnings of $2.38 per share, which
missed the Zacks Consensus Estimate by 3 cents. However, earnings
per share ("EPS") increased 7.7% year over year and 35.2%
sequentially, driven by lower operating costs and
better-than-expected margin expansion.
Core revenues declined a modest 0.8% year over year but jumped
12.1% sequentially to $463.1 million in the fourth quarter.
Including $31.8 million from divested operations in the year-ago
quarter, total revenue declined 7.0% year over year and missed
the Zacks Consensus Estimate of $475.0 million.
The weak year-over-year result was primarily due to sluggish
performance from Risk Management Solutions (down 2.6%) and
Internet Solutions (down 5.6%), which fully offset growth (up
3.4%) in the Sales & Marketing Solutions segment.
Sequentially, revenues were positively impacted by 37.9%
growth in Sales & Marketing Solutions segment and 2.5% growth
in Risk Management Solutions, which fully offset a 4.0% decline
in the Internet Solutions business segment.
D&B recorded a 1.7% year-over-year decline in revenues
from North America, while its International revenues increased
2.1% from the year-ago quarter. Strong International results were
driven by 1.4% revenue growth in Asia-Pacific and 2.6% growth in
Europe and other international markets.
Revenues from North America jumped 14.4% sequentially, while
International increased 5.1% over the year-ago quarter. Europe
and other international markets surged 10.0% that fully offset a
1.3% decline in the Asia-Pacific region.
D&B's operating margin expanded 80 basis points ("bps") on
a year-over-year basis and 620 bps sequentially to 37.2% in the
last quarter. The better-than-expected result was primarily
driven by lower-than-expected rise in operating costs and
Operating costs as a percentage of revenues improved to 65.7%
from 75.7% in the year-ago quarter and 73.5% in the previous
quarter. All expense items as a percentage of revenues improved
significantly, primarily reflecting stringent cost control and
Net margin contracted 50 bps from the year-ago quarter to
22.4% due to higher interest expense (up 23% year over year) and
other expense (up by $5.6 million). Net margin increased 320 bps
on a sequential basis due to lower interest expense.
D&B ended the quarter with $149.1 million in cash and cash
equivalents, up from $137.0 million in the previous quarter.
Total debt was $1.29 billion versus $1.02 billion at the end of
the preceding quarter.
Strategic Technology Investment (MaxCV)
In Feb 2010, D&B initiated a two-year strategic technology
investment program known as MaxCV to strengthen its leading
position in commercial data and improve its current technology
platform to meet the ever-growing needs of customers. The program
is expected to accelerate revenue growth and reduce expenses by
improving data quality and timeliness, increase the speed of
product innovation and significantly reduce technology costs.
In the fourth quarter of 2012, D&B incurred $4.7 million
in total pre-tax expenses for MaxCV. Moreover, it incurred $5.8
million in capital expenditures and additions to computer
software and other intangibles related to MaxCV.
D&B expects core revenues to remain flat to up 3.0%,
before the effect of foreign exchange. Operating income is
expected to decrease in the range of 6.0% to 3.0%, before
non-core gains and charges, which include $25.0 to $30.0 million
of charges for MaxCV in 2013.
EPS is expected to grow in the 8.0% to 11.0% range, before
non-core gains and charges. D&B expects free cash flow
between $270.0 million and $300.0 million. D&B expects its
ongoing financial flexibility initiative will create an
additional $70.0 to $80.0 million in 2013. D&B expects to
incur pre-tax restructuring charges of $17.0 to $22.0 million
related to the program in 2013.
We believe that D&B's high-margin business model, strong
international growth potential, emerging market growth
opportunities, strategic investments, incremental cost savings
and new product pipeline will drive growth over the long
However, we believe that the 2013 outlook reflects a sluggish
macroeconomic environment in its operating markets. The
sequential decline in Asia-Pacific revenues is a major concern.
Moreover, we believe that increasing competition from companies
Equifax Inc. (
Moody's Corp (
will also hurt profitability going forward.
Currently, D&B has a Zacks Rank #3 (Hold).
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