Impressive 1Q at Equifax - Analyst Blog

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Equifax Inc. ( EFX ) has posted first quarter 2012 adjusted earnings per share ( EPS ) of 70 cents surpassing the Zacks Consensus Estimate of 65 cents. Results were up 20.7% from 58 cents reported in the year-ago quarter. The adjusted EPS excludes acquisition-related amortization expense. Management attributed the improvement to diverse product offerings, which expanded Equifax' scope within the market.

Revenue

Revenue grew 10.6% year over year to $522.7 million. The revenue figure came within the company's expected growth range and was above the Zacks Consensus Estimate of $500.0 million. The upside could be attributed to top-line growth across the board, partially offset by lackluster performance by the International segment. Excluding any contribution from its Brazilian operations, revenue grew almost 15.0% year over year in the U.S. dollar terms.

Segment wise, total U.S. Consumer Information Solutions (USCIS) revenue was $217.7 million, up 20.0% from the year-ago quarter. Among sub-segments, strong growth was noticed in Mortgage Solutions Services (26.0%), followed by Online Consumer Information Solutions (24.0%). The company witnessed a relatively slower growth rate in its Consumer Financial Marketing Services segment (2.0%).

Total International (including Europe, Canada and Latin America) revenue slid 5.0% year over year to $121.0 million, mostly due to a 26.0% decline recognized in Latin America. However, Europe grew 15.0%, and the Canada Consumer segment climbed 5.0% in U.S. dollar terms.

Revenue from the TALX segment increased 14.0% year over year to $113.7 million. The upside resulted from a 37.0% year-over-year increase in the Verification Services revenue, partially offset by a 2.0% decline in the Employer Services revenue.

North American Personal Solutions contributed $49.5 million, reflecting an 11.0% year-over-year improvement. North American Commercial Solutions generated $20.8 million, up 1.0% from the year-ago quarter.

Operating Results

Gross margin in the first quarter was 61.5%, up from 59.4% in the year-ago quarter. Operating margin was 24.7% as against 23.1% a year ago. The margin performance was better in USCIS, International and North America Commercial Solutions, partially offset by weak performances by North America Personal Solutions and TALX.

The company reported higher operating expenses with selling, general and administrative expenditure increasing 17.3% year over year, partially offset by a 3.0% decline in depreciation and amortization expenses.

On a GAAP basis, net income from continuing operations was $71.5 million or 58 cents per share versus $57.3 million or 46 cents per share in the comparable quarter last year. Excluding the impact of acquisition-related amortization expense (net of tax) and a tax benefit, adjusted net income was $85.8 million or 70 cents per share, compared with $72.1 million or 58 cents per share in the year-ago quarter.

Balance Sheet, Cash Flow & Dividend

Equifax exited the quarter with $132.7 million in cash and cash equivalents, up from $127.7 million in the previous quarter. Accounts receivables were $297.8 million. Total long-term debt was $982.0 million, down from $1.01 billion in the prior quarter. Cash provided by operating activities was $48.3 million, compared with $149.7 million in the prior quarter.

Equifax paid a quarterly dividend of 18 cents per share totaling $21.2 million.

Guidance

For the second quarter of 2012, Equifax expects revenue to be up 12.0% to 14.0% from the year-ago quarter, based on contributions from domestic and international businesses, the ongoing foreign exchange rates and excluding contributions from Brazil. Excluding the impact of acquisition-related amortization expense, Equifax expects adjusted earnings per share to range between 70 cents and 73 cents. The Zacks Consensus Estimate for the second quarter is 68 cents, which is on the lower end of the company's guidance.

Our Take

Equifax exited the 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 around product innovation, broadening data assets through acquisitions and continuous share gains in North America were encouraging. But there is some concern relating to the operation ramp up of its Brazilian joint venture. In February 2011, Equifax announced that the credit reporting operation of its Brazilian subsidiary has been merged with Boa Vista Servicos S.A., the second-largest consumer credit bureau in Brazil.

Given the company's strong correlation to consumer and financial markets, as well as its U.S. 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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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.



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Referenced Stocks: ADP , EFX , EPS

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