Dun & Bradstreet Corp. (
reported first quarter 2012 earnings, before non-core gains and
one-time charges, of $1.35 per share, well short of the Zacks
Consensus Estimate of $1.39 per share.
Total revenue increased 1.2% (after the effect of foreign
exchange) year over year to $390.1 million but missed the Zacks
Consensus Estimate of $400.0 million. In the reported quarter, core
revenues were positively impacted by higher Sales & Marketing
Solutions revenue (up 8.1% year over year to $107.0 million) and
Internet Solutions revenue, (up 4.5% to $30.1 million).
The strong growth in Sales & Marketing Solutions and
Internet Solutions was fully offset by poor performance at Risk
Management Solutions, which declined 1.8% on a year-over-year basis
to $253.0 million in the quarter.
Region-wise, the quarter was mixed for D&B. North American
revenue dipped 1.0% year over year to $285.5 million. International
revenue grew a healthy 7.9% year over year to $104.6 million,
primarily driven by strong growth in the Asia-Pacific region (up
16.3%) and Europe and Other International markets (up 2.0%).
Operating expense increased 3.0% year over year to $319.3
million. D&B's operating profit increased 2.5% year over year
to $106.0 million. Operating margin expanded 40 basis points in the
reported quarter, due to higher-than-expected revenue growth. Net
Income increased 1.1% year over year to $65.2 million, while net
margin remained flat on a year-over-year basis in the reported
D&B ended the quarter with $117.7 million in cash and cash
equivalents, slightly up from $84.4 million in the previous
quarter. Total debt was $842.8 million versus $965 million at the
end of the preceding quarter.
Free cash flow, excluding the impact of legacy tax matters, was
$152.0 million compared with $118.8 million in the year ago first
Strategic Technology Investment (MaxCV)
In February 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, increasing the
speed of product innovation and significantly reducing technology
In the first quarter of 2012, D&B incurred $8.4 million in
total pre-tax expenses for MaxCV. Moreover, it incurred $7.5
million in capital expenditures and additions to computer software
and other intangibles related to MaxCV. D&B expects to spend
$60.0 million on MaxCV for fiscal 2012.
Chinese Unit Closure
In March 2012, D&B announced the suspension of operations at
its Chinese subsidiary, Shanghai Roadway D&B Marketing Services
Co. Ltd, following an investigation into its alleged violation of
U.S. and Chinese laws. The subsidiary had been blamed for breaching
Chinese consumer data privacy laws, the Foreign Corrupt Practices
Act (FCPA) as well as the anti-bribery law. The matter has been
referred to the U.S. Department of Justice (DOJ) and the Securities
and Exchange Commission (SEC) for further investigation.
Subsequently, D&B announced the closure of this Chinese
Guidance for 2012
D&B expects core revenues to increase 0.0% to 3.0% (prior
outlook 3.0% to 5.0%), before the effect of foreign exchange.
Operating income is expected to increase 4.0% to 7.0%, before
non-core gains and charges.
The company expects earnings to grow in the 8.0% to 11.0% range,
before non-core gains and charges. D&B expects free cash flow
between $275.0 million and $305.0 million, excluding the impact of
legacy tax matters but includes investments in MaxCV.
We are disappointed with the flat 2012 outlook, which reflects a
sluggish macro environment in North America and weakness in Europe.
Moreover, we believe that increasing competition from companies
Equifax Inc. (
Moody's Corp (
will also hurt profitability going forward.
However, we have a positive stance on D&B over the long term
owing to its high-margin business model, strong international
growth potential, emerging market growth opportunities, strategic
investments, incremental cost savings and new product pipeline.
We, therefore maintain our Neutral recommendation over the
long-term (6-12 months). Currently, D&B has a Zacks #4 Rank,
which implies a short-term Sell rating.
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