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Equifax (EFX) Surpasses Q4 Earnings and Revenue Estimates

Keeping its earnings streak alive for the eighth time in a row, Equifax Inc.EFX reported better-than-expected results for the fourth quarter of 2016. The company's adjusted earnings (excluding amortization expenses, Veda Group acquisition-related charges and other one-time items) per share from continuing operations of $1.42 surpassed the Zacks Consensus Estimate of $1.38 and surged 24.7% year over year.

On a GAAP basis, the company reported earnings of $1.01 per share, up from the year-ago quarter tally of 93 cents. The strong year-over-year bottom-line growth was mainly aided by solid top-line performance and stringent cost management, which was partially offset by a slight increase in the number of total outstanding shares.

Equifax Inc. - Earnings Surprise | FindTheBest

The overwhelming fourth-quarter results boosted investors' confidence as shares gained 2.5% in after hour trade. Notably, the stock has outperformed the Zacks categorized Financial Transaction Services industry in the past three month period. Equifax has gained 9.3% during the said period compared with the industry's return of 4.3%.

Revenues

Equifax's revenues of $801.1 million came ahead of the Zacks Consensus Estimate of $800 million as well as management's guided range of $797 million to $801 million (mid-point $799 million). The figure was also up 20.2% on a year-over-year basis.

The company made slight changes in its reportable segments from first-quarter 2016. The U.S. Information Solutions (USIS) and Workforce Solutions remained unchanged, while Personal Solutions was renamed to Global Consumer Solutions. Under the International segment, Equifax has "created a new Asia Pacific reporting unit, including the Veda acquisition as well as TDX Australia and India operations, which previously were part of the Europe reporting unit."

Segment-wise, total USIS revenues were up 7% year over year to $316.2 million. Among its sub-segments, growth was recorded in Online Information Solutions (4%), Mortgage Solutions Services (29%) and Financial Marketing Services (7%).

International revenues (including Europe, the Asia-Pacific, Canada and Latin America) surged 49% year over year to $212.4 million. On a constant-currency basis, revenues soared 62%. Growth was mainly driven by the Veda Group acquisition, which increased the Asia-Pacific region's contribution to revenues to $70.7 million from $2.6 million. Moreover, the company registered an increase of 4% each in Europe and Canada. However, revenues from Latin America dropped 4%.

Revenues from the Workforce Solutions segment surged 21% year over year to $173.6 million, primarily on the back of 24% revenue growth in Verification Services and 15% in Employer Services.

Global Consumer Solutions contributed $98.9 million to total revenue, reflecting an 18% year-over-year jump.

Operating Results

Equifax's adjusted operating income increased approximately 32% to $267.2 million. Consequently, adjusted operating margin expanded 300 basis points (bps) to 33.4%. Adjusted net income came in at $172.4 million or $1.42 per share, compared with $137.5 million or $1.14 per share reported a year ago.

Balance Sheet & Cash Flow

Equifax exited the quarter with $129.3 million in cash and cash equivalents, up from the previous quarter's balance of $111.5 million. Total long-term debt (excluding current portion) was $2.09 billion, down from $2.14 billion at the end of third-quarter 2016. During 2016, Equifax generated cash flow of $784.5 million from operational activities. The company paid $157.6 million as dividends in 2016.

Guidance

Buoyed by strong fourth-quarter results, Equifax provided an optimistic outlook for the first quarter and full year 2017. For full year 2017, Equifax expects revenues to come in a range of $3.375-$3.425 billion (mid-point $3.40 billion). The revenue outlook at mid-point is much higher than the Zacks Consensus Estimate of $3.38 billion. Adjusted earnings per share are forecast to be between $5.96 and $6.10 (midpoint: $6.03). The Zacks Consensus Estimate is pegged at $5.96.

For the first quarter, Equifax projects revenues in a range of $822 million to $826 million (midpoint: $824 million), while the Zacks Consensus Estimate is pegged at $820.5 million. Adjusted earnings per share are projected to be between $1.39 and $1.42 (midpoint: $1.405). However, the earnings guidance range was lower than the Zacks Consensus Estimate of $1.43.

Our Take

Equifax posted better-than-expected results for the fourth quarter. Earnings and revenues both recorded year-over-year growth. Moreover, its optimistic full-year guidance for revenues and earnings indicates that its growth initiatives are aimed in the right direction.

Management's efforts, such as strategic initiatives for product innovation, expansion of data assets through acquisitions and continuous share gains in North America, should prove to be tailwinds. Also, the company's strong correlation with the consumer and financial markets and exposure in the U.S. and Europe are likely to propel growth, going ahead.

However, we expect the company's investments in new initiatives to weigh on its upcoming quarterly earnings. Additionally, uncertainty surrounding IT spending and strengthening U.S. dollar are some concerns. Moreover, increasing competition from the likes of Fiserv FISV and Total System Services TSS are the other factors likely to affect earnings in the near term.

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Currently, Equifax has a Zacks Rank #4 (Sell).

A better-ranked stock in the financial transaction services industry is Envestnet Inc. ENV , which sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here .

Envestnet has a long-term EPS growth rate of 20% compared with the industry's average growth rate of 13.7%.

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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 Nasdaq, Inc.


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

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