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D&B Reports Mixed 2Q

Zacks Equity Research

Dun & Bradstreet Corp. (DNB) reported mixed second quarter 2012 results. Although earnings exceeded the Zacks Consensus Estimates by a dime, revenue was well short of the consensus mark.

Quarter Details

Total revenue decreased 1.1% (after the effect of foreign exchange) year over year to $384.0 million. The year-over-year decline was primarily due to weak results from the Risk management solutions (down 3.1% year over year) and Internet solutions (flat year over year) segment, partially offset by strong performance from Sales & marketing solutions (up 4.1% year over year) in the reported quarter.

Region-wise, the quarter was mixed for D&B. North American revenue dipped 2.4% year over year to $279 million. International revenue grew a modest 2.6% year over year to $105.0 million, primarily driven by strong growth in the Asia-Pacific region (up 9.9%), partially offset by a decline in Europe and Other International markets (down 2.5%).

Operating cost decreased 10.5% year over year to $285.3 million. Selling, general & administrative expense plunged 9.8%; operating expenses declined 12.0% and depreciation & amortization was down 4.4% on a year-over-year basis in the reported quarter.

D&B’s operating profit increased 5.2% year over year to $114.0 million. Operating margin expanded 180 basis points in the reported quarter, due to lower operating expenses.

Net income was $70.5 million or $1.50 per share compared with $67.0 million or $1.35 per share in the year-ago quarter. This significant year-over-year growth was driven by operating margin expansion.

D&B ended the quarter with $118.6 million in cash and cash equivalents, slightly up from $117.7 million in the previous quarter. Total debt was $1.01 billion versus $842.8 million at the end of the preceding quarter. Free cash flow, excluding the impact of legacy tax matters, was $57.4 million compared with $152.0 million 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, increase the speed of product innovation and significantly reduce technology costs.

In the second quarter of 2012, D&B incurred $10.5 million in total pre-tax expenses for MaxCV. Moreover, it incurred $8.8 million in capital expenditures and additions to computer software and other intangibles related to MaxCV. D&B expects to spend $60.0 million for MaxCV in fiscal 2012.

Guidance for 2012

D&B expects core revenues to increase 0.0% to 3.0%, before the effect of foreign exchange. Operating income is expected to increase 4.0% to 7.0%, before non-core gains and charges.

Earnings are expected to grow in the 8.0% to 11.0% range, before non-core gains and charges. D&B expects free cash flow between $275.0 million and $305.0 million, excluding the impact of legacy tax matters but includes investments in MaxCV.


We believe that D&B’s high-margin business model, strong international growth potential, emerging market growth opportunities, strategic investments, incremental cost savings and new product pipeline will drive growth over the long term.

However, we believe that the 2012 outlook 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 also hurt profitability going forward.

We, therefore maintain our Neutral recommendation over the long-term (6-12 months). Currently, D&B has a Zacks #4 Rank, which implies a short-term Sell rating.

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