Dun & Bradstreet Corp. (DNB) reported fourth-quarter 2013 earnings of $2.75 per share that surged 15.5% from the year-ago quarter but missed the Zacks Consensus Estimate by 10 cents. Shares plunged 15.2% ($16.21) in after-hours trading.
Quarter Details
Core revenues (prior to divested business) increased a modest 2.9% year over year to $476.7 million and beat the Zacks Consensus Estimate of $468.0 million.
The year-over-year growth was primarily due to strong performance from Risk Management Solutions (up 1.1%) and Sales & Marketing Solutions (up 5.6%).
D&B recorded year-over-year increase (up 3.8%) in revenues from North America. International revenues were almost flat with the year-ago quarter, due to modest growth in Europe and other International markets (flat) and Asia-Pacific (flat) in the fourth quarter.
Total operating costs as a percentage of revenues increased 100 basis points (bps) from the year-ago quarter, driven by significantly higher operating expense (up 170 bps), which fully offset a lower depreciation & amortization expense (down 40 bps) and selling & administration expense (down 20 bps).
Operating margin declined 100 bps from the year-ago quarter to 36.2%, due to higher operating expenses in the quarter. Net income margin declined 30 bps from the year-ago quarter to 22.1%.
D&B ended the quarter with $235.9 million in cash and cash equivalents, up from $214.3 million in the previous quarter. Total debt was $1.52 billion versus $1.46 billion at the end of the preceding quarter.
During the quarter, D&B repurchased 0.5 million shares for $54.9 million under its discretionary repurchase program. In fiscal 2013, the company bought back approximately 3.5 million shares for $325.0 million. Free cash flow was $278.2 million as compared with $283.4 million in fiscal 2012.
D&B announced a number of organizational changes at the end of the quarter. D&B also increased quarterly cash dividend from 40 cents to 44 cents.
Recommendation
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 sluggish macroeconomic environment in its operating markets remains a major concern. Further, sluggish revenue growth in the Asia-Pacific market will remain a concern in the near term.
Moreover, we believe that increasing competition from companies including Equifax Inc. (EFX), Yahoo! (YHOO) and Moody’s Corp. (MCO) will hurt profitability, going forward.
Currently, D&B has a Zacks Rank #3 (Hold).
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