Dun & Bradstreet Beats Consensus - Analyst Blog

Dun & Bradstreet Corp. (DNB), a provider of business information, reported fourth quarter earnings before non-core gains and one-time charges of $1.92 per share, beating the Zacks Consensus Estimate of $1.88.

Operating Performance

Earnings per share, on a pro forma basis, increased 9.7% from $1.75 earned in the year-ago quarter. Net income, before non-core gains and one-time charges, were $96.2 million, up 5.3% year over year, with net margin improving 30 basis points (bps) on a year-over-year basis.

In fiscal 2010, pro forma earnings per share increased 4.4% year over year to $5.66, surpassing the Zacks Consensus Estimate of $5.62 and meeting management's guided range of 1.0% to 6.0% growth. The increase was on account of a lower share count.

In the fourth quarter, GAAP operating expenses increased 11.7% year over year to $149.1 million. However, selling and administrative expense fell 1.7% year over year to $157.8 million.

In fiscal 2010, GAAP operating expenses increased 11.5% year over year to $557.7 million, while selling and administrative expense fell 2.2% year over year to $626.9 million.

Pro forma operating income was $167.3 million, up 6.4% year over year, with operating margin increasing 80 bps in the fourth quarter. In fiscal 2010, operating income decreased 2.0% year over year to $480.8 million. Operating margin declined 40 bps on a year-over-year basis.

Revenue

Fourth quarter core revenues increased 7.2% year over year (both before and after any foreign exchange impact) to $481.7 million. Total revenue was also $481.7 million, up 3.9% year over year, slightly lower than the Zacks Consensus Estimate of $482.0 million.

In fiscal 2010, core revenues increased 3.1% year over year to $1.64 billion, slightly above management's guidance of 1.0% to 3.0% revenue growth. Total revenue decreased 0.6% year over year to $1.68 billion due to lower revenue from divested business in the fiscal year.

Segment-wise Revenue

In the fourth quarter, core revenues were positively impacted by Risk Management Solutions revenues (59.2% of total core revenue), which were up 8.4% year over year to $285.2 million. Sales & Marketing Solutions revenues (34.8% of total core revenue) were up 6.3% year over year to $167.7 million and Internet Solutions revenues (6.0% of total core revenue) increased 0.3% to $28.8 million, after the foreign exchange impact.

In fiscal 2010, Risk Management Solutions revenues (63.1% of total core revenue) were up 3.4% year over year to $1.04 billion. Sales & Marketing Solutions revenues (29.9% of total core revenue) were up 3.7% year over year to $492.1 million. Internet Solutions revenues (7.0% of total core revenue) increased 2.6% to $114.9 million, after the foreign exchange impact.

Region-wise Revenue

Fourth quarter results were positively impacted by strong overseas performance. Core revenues in the International segment rose 23.0% year over year (3.0% inorganically) to $130.7 million, after the foreign exchange impact. The growth was primarily driven by strength in emerging markets and a robust demand for the company's products and services.

Within International, Risk Management Solutions revenues were up 27.0%, Sales & Marketing Solutions revenues grew 9% and Internet Solutions revenues increased 1.0% year over year, after the effect of foreign exchange.

North American core revenues were up 2.3% year over year to $351.0 million, after the foreign exchange impact.

Within the North America business, Risk Management Solutions increased 1% after the effect of foreign exchange. Sales & Marketing Solutions were strong in the quarter, up 5.0%, while Internet Solutions revenues were flat on a year-over-year basis.

In fiscal 2010, International core revenue increased 17.0% year over year, driven by strong performance at Risk Management Solutions and Sales & Marketing Solutions, which were up 16.0% and 19.0%, respectively. Internet Solutions revenues however remained flat year over year.

North America remained weak, with core revenues falling 1.0% year over year. Both Risk Management Solutions and Internet Solutions declined 1.0% and 3.0%, respectively. Sales & Marketing Solutions were flat year over year.

Balance Sheet and Cash Flow

The company ended the quarter with $78.5 million in cash and cash equivalents, up from $77.2 million in the previous quarter. Total debt came in at $973.5 million at quarter end versus $956.0 million at the end of the preceding quarter.

Net debt (long-term and short-term debt less cash) increased to $895.0 million or $17.90 per share at the end of the quarter versus $878.8 million or $16.87 per share in the previous quarter.

Operating cash flow was $315.1 million in fiscal 2010. Free cash flow in fiscal 2010, excluding the impact of legacy tax matters, was $249.2 million, including approximately $36.0 million related to the Strategic Technology Investment, compared with $296.2 million in the prior-year quarter.

During fiscal 2010, D&B repurchased 1.1 million shares for $81.0 million.

Strategic Technology Investment

The company announced a two-year strategic technology investment program aimed at strengthening its leading position in commercial data and improving its current technology platform in February 2010. The program is expected to accelerate revenues and reduce expenses by improving data quality and timeliness, increasing the speed of product innovation and significantly reducing technology costs once the investment is complete.

Quarterly operating expenses included $12.3 million (or 18 cents per share) related to the Strategic Technology Investment.

Operating expenses for fiscal 2010 included $36.5 million (or 55 cents per share) related to the Strategic Technology Investment.

D&B expects to spend $110 million to $130 million in the next one and a half years to complete the program, with $55 million to $65 million of the spending expected to be incurred in fiscal 2011.

2011 Guidance

D&B expects core revenues to be up 5.0% to 8.0%, before the effect of foreign exchange. Operating income is expected to increase 2.0% to 6.0%, before non-core gains and charges.

Growth in earnings per share is expected to be 6.0% to 10.0%, before non-core gains and charges. The company expects free cash flow of $240 million to $270 million, excluding the impact of legacy tax matters but including the new Strategic Technology Investment.

The company expects to earn $75.0 million to $85.0 million from its ongoing financial flexibility program in 2011.

Currently, the Zacks Consensus Estimate is $5.98 per share for fiscal 2011, below the company's guided range. For the first quarter of 2011, the Zacks Consensus Estimate is pegged at $1.30.

Our Take

Our long-term view is positive, attributable to D&B's high-margin business model, international growth potential, emerging market growth opportunities, strategic investments, incremental cost savings and new product pipeline.

However, a sluggish macro environment in North America and weakness in Europe remain concerns. Acquisitions have played a major role in international growth and we expect integration to remain a primary concern going forward. Moreover, a high net debt will hurt financial stability going forward.

We maintain a Neutral rating on a long-term basis (6-12 months). Currently, D&B has a Zacks #3 Rank, which implies a Hold rating over the short term (1-3 months).

 
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