D&B Beats in 4Q, Outlook Flat


Dun & Bradstreet Corp. (DNB) reported fourth quarter earnings, before non-core gains and one-time charges, of $2.21 per share, comprehensively beating the Zacks Consensus Estimate of $2.09 per share.

Quarter Details

Total revenue increased 3.5% (after the effect of foreign exchange) year over year to $498.7 million and almost matched the Zacks Consensus Estimate. In the reported quarter, core revenues were positively impacted by higher Sales & Marketing Solutions revenue (up 4.8% year over year to $139.9 million) and Internet Solutions revenue, (up 9.3% to $30.5 million).

The strong growth in Sales & Marketing Solutions and Internet Solutions was fully offset by poor sales performance at Risk Management Solutions, which remained flat on a year-over-year basis to $189.9 million in the quarter.

Region-wise, the quarter was mixed for D&B. North American revenue crept up 2.6% year over year to $360.3 million. International revenue grew a healthy 5.9% year over year to $138.4 million, primarily driven by strong growth in the Asia-Pacific region (up 13.1%), which fully offset a slight decline in Europe and Other International markets (down 0.9%).

Despite the strong revenue growth, D&B’s operating profit increased a mere 1.5% year over year to $169.8 million. Operating margin declined 70 basis points in the reported quarter, due to higher-than-expected increase in operating costs (7.0% year over year). The strong growth in operating expenses was primarily driven by a 9.6% year-over-year increase in selling and administrative expense in the quarter.

Net Income increased 10.9% year over year to $107.0 million, while net margin enhanced 150 basis points due to lower interest expense in the reported quarter.

Balance Sheet and Cash Flow

D&B ended the quarter with $84.4 million in cash and cash equivalents, slightly down from $89.5 million in the previous quarter. Total debt was $965.0 million versus $893.2 million at the end of the preceding quarter. Net debt (long-term and short-term debt less cash) increased to $880.6 million or $18.23 per share at the end of the quarter versus $803.7 million or $16.37 per share in the previous quarter.

Strategic Technology Investment (MaxCV)

In February 2010, D&B initiated a two-year strategic technology investment program known as MaxCV, to strengthen its leading position in commercial data and improve its current technology platform to meet the ever-growing needs of customers. The program is expected to accelerate revenue growth and reduce expenses by improving data quality and timeliness, increasing the speed of product innovation and significantly reducing technology costs.

In the fourth quarter of 2011, D&B incurred $12.2 million in total pre-tax expenses for MaxCV. Moreover, it incurred $8.6 million in capital expenditures and additions to computer software and other intangibles related to MaxCV.

D&B expects to spend $60.0 million in fiscal 2012, with 70.0% of the amount in operating expenses and the remaining 30.0% as capital expenditure.

Strategic Transactions, Acquisition and Divestment

During the fourth quarter, D&B announced the sale of the domestic portion of its Japan operations to Tokyo Shoko Research (:TSR). Under the terms of the agreement, D&B will provide TSR global data for Japanese customers and will be the sole distributor of TSR data to its worldwide network partners. D&B is expected to receive $4.5 million in net cash consideration as well as $1.5 million to settle a receivable with TSR. The transaction is expected to close by the end of February 2012.

D&B also divested its Chinese market research business for a total price of $5.0 million during the quarter. D&B acquired substantially all the assets of MicoMarketing, a direct marketing services provider in China for approximately $14.0 million.

Guidance for 2012

D&B expects core revenues to increase 3.0% to 5.0%, before the effect of foreign exchange. Operating income is expected to increase 4.0% to 7.0%, before non-core gains and charges.

The company expects earnings to grow in the 8.0% to 11.0% range, before non-core gains and charges. D&B expects free cash flow between $310 million and $340 million, excluding the impact of legacy tax matters but includes investments in MaxCV.

Currently, the Zacks Consensus Estimate is pegged at $6.76 per share for fiscal 2012. For the first quarter of 2012, the Zacks Consensus Estimate stands at $1.40.


We have a positive stance on D&B over the long term owing to its high-margin business model, strong international growth potential, emerging market growth opportunities, strategic investments, incremental cost savings and new product pipeline.

However, we are disappointed with the flat 2012 outlook, which reflects a sluggish macro environment in North America and weakness in Europe. Moreover, we believe that increasing competition from companies including Equifax Inc. (EFX) and Moody’s Corp (MCO) will alsohurt profitability going forward. We, therefore maintain our Neutral recommendation over the long-term (6-12 months).

We note that the stock has appreciated approximately 11.0% over the last one month compared to a 5.2% increase in the S&P 500. Considering, the strong fourth quarter results, we believe that the shares will further appreciate in the near term. Currently, D&B has a Zacks #2 Rank, which implies a short-term Buy rating.

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