Dun & Bradstreet Beats on Q1 Earnings, Misses Revs - Analyst Blog

Dun & Bradstreet Corp. DNB reported first-quarter 2014 earnings of $1.55 per share that surged 14.0% from the year-ago quarter and comfortably beat the Zacks Consensus Estimate by 24 cents. The beat reflects better-than-expected operating results driven by strong growth in International markets.

Revenues

Revenues (including divestiture of $0.1 million) remained almost flat on a year-over-year basis at $381.9 million, which missed the Zacks Consensus Estimate of $385.0 million. Core revenues (excluding divested business) remained almost flat year over year at $381.8 million.

North America disappointed in the quarter, as core revenues declined 1.5% from the year-ago quarter.  Risk Management Solutions - North America revenues declined 1.6% year over year while Sales & Marketing solutions - North America fell 1.3% from the year-ago quarter.

Revenues from DNBi subscription plan in North America declined 4.0%, while non-DNBi subscription plans plunged 9.0% from the year-ago quarter. This was partially offset by 7.0% revenue increase in Projects and Other Risk Management Solutions.

Sales & Marketing solutions – traditional revenues declined 6.0% from the year-ago quarter, partially offset by 2.0% revenue growth in VAPS.

D&B's International business segment performed well in the quarter, with revenues increasing 6.0% year over year, driven by 9.0% revenue growth in Europe & Other International markets and 2.0% growth in Asia-Pacific.

Risk Management Solutions - International revenues increased 6.0% year over year, while Sales & Marketing solutions - International were up 8.0% from the year-ago quarter.

Overall, core revenues from Risk Management Solutions increased a modest 0.8% year over year. However, revenues from Sales & Marketing solutions remained almost flat with the year-ago quarter.

Margins

Total operating costs as a percentage of revenues increased 120 basis points (bps) from the year-ago quarter, driven by higher operating expense (up 50 bps) and selling & administration expense (up 130 bps), which fully offset a lower depreciation & amortization expense (down 60 bps).

Segment operating margin (prior to corporate expenses) contracted 50 bps to 26.4% in last quarter. North America - operating margin plunged 240 bps primarily due to lower revenues. However, International – operating margin expanded 530 bps driven by strong growth in both Asia-Pacific and Europe & Other International market operating margins.

Overall, operating margin declined 120 bps from the year-ago quarter to 22.9%, due to modest revenue base and higher operating expenses in the quarter.

Net income on a GAAP basis was $85.3 million or $2.26 per share compared with $52.9 million or $1.29 per share in the year-ago quarter. Including restructuring charges ($3.4 million), legal and other professional Fees and shut-down (Costs) recoveries related to matters in China ($0.2 million), effect of legacy tax matters ($30.7 million) and after-tax impact ($27.1 million), non-GAAP net income was $58.2 million.

Balance Sheet & Cash Flow

D&B ended the quarter with $268.3 million in cash and cash equivalents, up from $235.9 million in the previous quarter. Total debt was $1.51 billion versus $1.52 billion at the end of the preceding quarter.

During the quarter, D&B repurchased 0.8 million shares for $85.0 million under its discretionary repurchase program. Free cash flow was $148.5 million in the first quarter.

Acquisition

D&B announced that it has acquired cloud-based analytics and business intelligence provider Indicee. However, the company did not reveal the terms of the transaction. Indicee develops apps that can be used to analyze sales and Salesforce chatter. The company has a strong clientele that includes the likes of Maxim Integrated MXIM.

Most recently, D&B acquired the social data matching business of Fliptop, which maintains database comprising unstructured data by aggregating social data and public web. It then makes use of data science to extract information from these unstructured data.

Guidance

D&B reiterated full-year 2014 outlook. Core revenues are expected to remain almost flat or increase 3.0% before the effect of foreign exchange. However, operating income is expected to decline 5.0% to 9.0%, before non-core gains and charges.

Earnings per share are expected to decline 1.0% to 5.0%, before non-core gains and charges. Free cash flow is expected to be in the range of $250.0 to $280.0 million for the full year.

Our Take

We believe that D&B's high-margin business model, strong international growth potential, international growth opportunities, strategic investments, partnerships, accretive cloud-based acquisitions and aggressive share buyback will drive growth.

We believe that partnerships with the likes of Salesforce.com CRM, SugarCRM and FirstRain will help the company to expand its data-as-a-service model, which in turn will boost top-line growth. We also expect the company to pursue strategic acquisition that will boost its position in cloud-based offerings.

However, weak guidance remains a concern. Increasing competition from companies such as Equifax Inc. EFX will continue to hurt growth in revenues and profitability in 2014. Moreover, higher debt level remains a concern.

Currently, D&B has a Zacks Rank #3 (Hold).