Equifax Comfortably Beats 3Q Ests - Analyst Blog

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Equifax Inc. ( EFX ) has posted third quarter 2012 adjusted earnings per share (EPS) of 75 cents, surpassing the Zacks Consensus Estimate by 3 cents. Results were up 16.0% from the year-ago quarter. The adjusted EPS excludes the impact of acquisition-related amortization expense, net of tax. Management attributed the improvement to better mortgage activities and strong performance of non-mortgage revenues.

Revenue

Revenue grew 10.9% year over year to $543.9 million. The revenue figure was at the higher end of the company's expected growth range and above the Zacks Consensus Estimate of $540.0 million. The upside could be attributed to top-line growth across the board, partially offset by lackluster performance of the International segment. As per management, the revenue growth reflected solid payback from investments in new product innovations and penetration into new markets.

Segment wise, total U.S. Consumer Information Solutions (USCIS) revenue was $233.3 million, up 15.0% from the year-ago quarter. Among sub-segments, strong growth was noticed in Mortgage Solutions Services (up 35.0%), followed by Online Consumer Information Solutions (up 16.0%). The company witnessed a deceleration in its Consumer Financial Marketing Services segment (down 4.0%).

Total International (including Europe, Canada and Latin America) revenue grew 2.0% year over year to $121.0 million, mostly due to a 4.0% growth recognized in Latin America and 3.0% in Europe. The Canada Consumer segment remained unchanged in U.S. dollar terms.

Revenue from the Total Workforce Solutions segment increased 14.0% year over year to $117.0 million. The upside resulted from a 33.0% year-over-year increase in Verification Services revenue, partially offset by a 5.0% decline in Employer Services revenue.

North American Personal Solutions contributed $51.4 million, reflecting 13.0% year-over-year improvement. North American Commercial Solutions generated $21.2 million, down 2.0% from the year-ago quarter.

Operating Results

Gross margin in the third quarter was 61.7%, down 20 basis points from the year-ago quarter. Operating margin was 24.3% as against 24.8% a year ago. The margin performance was better in USCIS and Workforce Solutions, offset by weak performances of International, North America Personal Solutions and North America Commercial Solutions segments.

The company reported higher operating expenses with selling, general and administrative expenditure increasing 14.9% year over year. Depreciation and amortization expenses remained unchanged at $40.5 million.

On a GAAP basis, net income from continuing operations was $77.9 million or 64 cents per share versus $66.7 million or 54 cents per share in the comparable quarter last year. Excluding the impact of acquisition-related amortization expense, net of tax, adjusted net income was $92.2 million or 75 cents per share, up 16.0% from $80.5 million or 65 cents in the year-ago quarter.

Balance Sheet, Cash Flow

Equifax exited the quarter with $267.2 million in cash and cash equivalents, up from $183.1 million in the previous quarter. Accounts receivables were $296.9 million. Total long-term debt was $968.3 million, down from $968.8 million in the prior quarter. Cash provided by operating activities was $151.7 million, compared with $152.1 million in the prior quarter.

During the third quarter, Equifax bought back 0.7 million of common shares for $33.9 million. As of September 30, 2012, roughly $227.1 million worth shares remain under the current authorization. Equifax paid a quarterly dividend of 18 cents per share.

Guidance

For the fourth quarter of 2012, Equifax expects revenue to be up 8.0% to 10.0% from the year-ago quarter, based on contributions from domestic and international businesses and ongoing foreign exchange rates. Excluding the impact of acquisition-related amortization expense, Equifax expects adjusted earnings per share to range between 72 cents and 76 cents. The Zacks Consensus Estimate for the fourth quarter is 73 cents, which is toward the lower end of the company's guidance.

Our Take

Equifax exited the third quarter with flying colors, surpassing the Zacks Consensus Estimates both on the top and bottom lines. We are optimistic about Equifax' revenue growth prospects and improving margins, as reflected in its guidance.

Management's efforts regarding strategic initiatives for product innovation, broadening data assets through acquisitions and continuous share gains in North America were encouraging.

Given the company's strong correlation to consumer and financial markets, as well as its U.S. and European exposure, we see a gradual improvement in results. But stiff competition from Automatic Data Processing Inc. ( ADP ) is a concern.

Currently, Equifax has a Zacks #3 Rank implying a short-term "Hold" rating.



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EQUIFAX INC (EFX): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: ADP , EFX , EPS

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