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Equifax Tops Estimates, Guides Firm

Zacks Equity Research

Equifax Inc. (EFX) has posted second quarter 2012 adjusted earnings per share (EPS) of 74 cents, surpassing the Zacks Consensus Estimate by 2 cents. Results were up 21.0% from the year-ago quarter. The adjusted EPS excludes loss on the deconsolidation of Brazil and the impact of acquisition-related amortization expense, net of tax. Management attributed the improvement to better mortgage activities and strong performance of non-mortgage revenues.


Revenue grew 10.0% year over year to $535.8 million. The revenue figure came in below the company’s expected growth range but was above the Zacks Consensus Estimate of $528.0 million. The upside could be attributed to top-line growth across the board, partially offset by lackluster performance by the International segment. Excluding any contribution from its Brazilian operations, revenue grew almost 14.0% year over year in the U.S. dollar terms.

Segment wise, total U.S. Consumer Information Solutions (:USCIS) revenue was $230.1 million, up 19.0% from the year-ago quarter. Among sub-segments, strong growth was noticed in Mortgage Solutions Services (51.0%), followed by Online Consumer Information Solutions (20.0%). The company witnessed a deceleration in its Consumer Financial Marketing Services segment (down 9.0%).

Total International (including Europe, Canada and Latin America) revenue slid 9.0% year over year to $119.5 million, mostly due to a 22.0% decline recognized in Latin America. However, Europe grew 11.0%, and the Canada Consumer segment inched up 2.0% in U.S. dollar terms.

Revenue from the Total Workforce Solutions segment increased 18.9% year over year to $115.2 million. The upside resulted from an 18.9% year-over-year increase in the Verification Services revenue, partially offset by flat growth in the Employer Services revenue.

North American Personal Solutions contributed $50.7 million, reflecting 5.5% year-over-year improvement. North American Commercial Solutions generated $20.3 million, down 0.5% from the year-ago quarter.

Operating Results

Gross margin in the second quarter was 62.0%, up from 61.3% in the year-ago quarter. Operating margin was 24.8% as against 23.5% a year ago. The margin performance was better in USCIS, International, Workforce Solutions and North America Personal Solutions, partially offset by weak performance by North America Commercial Solutions.

The company reported higher operating expenses with selling, general and administrative expenditure increasing 10.9% year over year and depreciation and amortization expenses rising 0.2%.

On a GAAP basis, net income from continuing operations was $76.4 million or 62 cents per share versus $57.3 million or 28 cents per share in the comparable quarter last year. Excluding loss on the deconsolidation of Brazil and the impact of acquisition-related amortization expense, net of tax, adjusted net income was $90.7 million or 74 cents per share, up 21.0% from $76.5 million or 61 cents in the year-ago quarter.

Balance Sheet, Cash Flow & Dividend

Equifax exited the quarter with $183.1 million in cash and cash equivalents, up from $132.7 million in the previous quarter. Accounts receivables were $293.9 million. Total long-term debt was $968.8 million, down from $982.0 million in the prior quarter. Cash provided by operating activities was $152.1 million, compared with $48.3 million in the prior quarter.

During the second quarter, Equifax bought back 1.1 million of common shares for $51.1 million. As of June 30, 2012, roughly $261.0 million worth shares remain under the current authorization. Equifax paid a quarterly dividend of 18 cents per share totaling $21.9 million.


For the third quarter of 2012, Equifax expects revenue to be up 9.0% to 11.0% from the year-ago quarter, based on contributions from domestic and international businesses and the ongoing foreign exchange rates excluding contributions from Brazil. Excluding the impact of acquisition-related amortization expense, Equifax expects adjusted earnings per share to range between 71 cents and 74 cents. The Zacks Consensus Estimate for the third quarter is 74 cents, which is on the higher end of the company’s guidance.

Our Take

Equifax exited the quarter with flying colors, surpassing the Zacks Consensus Estimates both on the top and bottom lines. We are optimistic about Equifax’ revenue growth prospects and improving margins, as reflected in its guidance. But management’s projection of a lackluster mortgage scenario in the second half of 2012 concerns us.

Management’s efforts regarding strategic initiatives around product innovation, broadening data assets through acquisitions and continuous share gains in North America were encouraging.

Given the company’s strong correlation to consumer and financial markets, as well as its U.S. exposure, we see a gradual improvement in results. But stiff competition from Automatic Data Processing Inc. (ADP) is a concern.

Currently, Equifax has a Zacks #4 Rank implying a short-term “Sell” rating.

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