Dun & Bradstreet Corp. (NYSE:DNB - News) is scheduled to release its fiscal fourth quarter results on February 6, 2011 after the closing bell. We do not notice any changes in analyst estimates ahead of the earnings release.
However, the company has exceeded the Zacks Consensus Estimates in the past four quarters, averaging a positive earnings surprise of 4.0%. Thus, another positive earnings surprise is expected from the company for the fourth quarter.
Recap of 3Q11
In the third quarter of 2011, the company surpassed the Zacks Consensus Estimate on both the top line and bottom line, boosted by higher core revenue (Risk Management Solutions, Sales & Marketing Solutions and Internet Solutions revenue) and favorable foreign exchange rates.
In the third quarter, operating expenses increased 2.2% year over year to $150.2 million. Selling and administrative expenses were up 3.2% year over year to $162.6 million. Net income before non-core gains and one-time charges was $70.0 million, up 15.0% year over year, with net margin expanding 70 basis points (bps) to 15.9%.
Expectations from 4Q11 and FY11
For the fourth quarter, management expects continued top-line growth from the North American region.
For fiscal 2011, D&B expects core revenues to increase 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.
The company expects earnings to grow in the 6.0% to 10.0% range, before non-core gains and charges. D&B expects free cash flow (excluding the impact of legacy tax matters but including the new Strategic Technology Investment) to be between $240 million and $270 million.
Estimate Revision Trend
In the last thirty days, none of the seven analysts covering the stock have made any changes in their estimates, and as a result the Zacks Consensus Estimate for the fourth quarter remained at $2.09 per share.
For fiscal 2011, the Zacks Consensus Estimate is pegged at $6.14 per share.
Analysts covering the stock expect the company to be positively impacted by the company’s strong product portfolio that is expected to drive the top-line going forward. Additionally, the wind down of $130 million of strategic technology investment is expected to save costs in 2012 and beyond.
We believe D&B’s high-margin business model, international growth potential, emerging market growth, strategic investments, incremental cost savings, new product pipeline and impressive cash flow to drive its long-term growth.
However, a sluggish macro-economic environment in North America and weakness in Europe combined with integration related risks and foreign exchange headwinds remain concerns. Moreover, increasing competition from companies including Equifax Inc. (NYSE:EFX - News) and Moody’s Corp. (NYSE:MCO - News) may hurt its profitability going forward.
We maintain our Neutral recommendation 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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