Equifax Inc. (EFX) has posted second quarter 2011 adjusted earnings per share (EPS) of 61 cents, inching past the Zacks Consensus Estimate by a penny. The quarter’s result was 8.9% above 56 cents reported in the year-ago quarter.
The adjusted EPS excludes acquisition-related amortization expense and loss incurred on the merger of Brazilian business. The earnings improvement was fueled by growth in International revenues and demand for new products. Shares increased 2.47% in after-market trade.
Revenue
Revenue grew 5.7% year over year to $487.1 million. The upside could be attributed to top-line growth across the board, partially offset by lackluster performance in the U.S. and TALX due to weakness in the mortgage sector.
Segment wise, total U.S. Consumer Information Solutions (USCIS) revenue was $194.0 million, compared with $184.6 million in the year-earlier quarter. Among sub-segments, strong growth was noticed in Consumer Financial Marketing Services, followed by Online Consumer Information Solutions. However, the overall growth was rationalized by a 6% year-over-year decline in Mortgage Solutions Services.
Total International (including Europe, Canada and Latin America) revenue climbed 11.0% year over year to $130.8 million. Of this, Latin America increased 5.0%, Europe 20.0%, and the Canada Consumer segment climbed 12.0% in U.S. dollar terms.
Revenue from the TALX segment decreased 2.7% year over year to $96.3 million. The downside resulted from a 5.0% year-over-year decrease in Tax & Talent Management Services revenue and flat growth in Work Number revenue.
North American Personal Solutions contributed $45.2 million, reflecting a 12.0% year-over-year improvement. North American Commercial Solutions brought in $20.8 million, up 12.0% from the year-ago quarter.
Operating Results
Gross margin in the second quarter was 60.8%, up from 59.1% in the year-ago quarter. Operating margin was 23.5% as against 23.0% a year ago. The margin performance was modest in North America Personal Solutions and North America Commercial Solutions and International, followed by marginal declines in USCIS and TALX.
The company reported higher operating expenses with selling, general and administrative expenditure increasing 10.7% year over year and depreciation and amortization expenses rising 3.5%.
On a GAAP basis, net income from continuing operations was $34.5 million or 28 cents per share versus $57.7 million or 45 cents per share in the comparable quarter last year. Excluding the impact of acquisition-related amortization expense (net of tax) and loss on the merger of Brazilian business, adjusted net income was $76.5 million or 61 cents per share, compared with $71.8 million or 56 cents per share in the year-ago quarter.
Balance Sheet, Cash Flow
Equifax exited the quarter with $108.7 million in cash and cash equivalents, up from $86.9 million in the previous quarter. Accounts receivables were $273.0 million. Total long-term debt was $981.5 million, down from $1.02 billion in the prior quarter. Cash provided by operating activities was $123.9 million, compared with $23.1 million in the prior quarter.
Guidance
For the third quarter of 2011, Equifax expects revenue to be up 6.0% to 9.0% from the year-ago quarter, based on contributions from domestic and international businesses and ongoing foreign exchange rates. Excluding the impact of acquisition-related amortization expense, Equifax expects adjusted earnings per share to range between 61 cents and 65 cents. Zacks Consensus estimate for the third quarter is 64 cents, which is at the higher end of the company’s guidance.
Our Take
We are not very excited about the company’s second quarter performance, which just about matched the Zacks Consensus Estimate on the bottom line. But we are optimistic about revenue growth prospects and improving margins through the remainder of the year.
Management’s commentary regarding strategic initiatives around new product innovation, broadening data assets through acquisitions and continuous share gains in the North America were encouraging.
In June, Equifax acquired Boa Vista Servicos S.A., the second-largest consumer credit bureau in Brazil. With this strategic acquisition, the company can now provide a broad range of consumer and commercial credit data to Brazilian business firms.
However, 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, in pace with the country’s economic recovery. But stiff competition from Automatic Data Processing Inc. (ADP) is a concern.
Currently, Equifax has a Zacks #2 Rank implying a short-term Buy rating.
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