Equifax Inc. (EFX) posted first quarter 2011 adjusted earnings per share (EPS) of 58 cents, in line with the Zacks Consensus Estimate and up 9.4% from the year-ago quarter. The adjusted EPS excludes acquisition-related amortization expense. The earnings improvement was fueled by growth across all revenue segments and increased demand for new products.
Revenue
Revenue grew 6.7% year over year to $472.6 million, but missed the Zacks Consensus Estimate of $474.0 million. The year-over-year upside could be attributed to top-line growth across the board.
Moreover, adoption of new products by clients as well as expansion of partnerships boosted revenues. Currency exchange had a positive impact on the quarter’s revenue.
Segment-wise, total U.S. Consumer Information Solutions (USCIS) revenue was $181.0 million, compared with $173.1 million in the year-earlier quarter. Among sub-segments, strong growth was noticed in Mortgage Solutions Services and Consumer Financial Marketing Services, followed by a flat growth in Online Consumer Information Solutions.
Total International (including Europe, Canada and Latin America) revenue climbed 9.0% year over year to $127.2 million. Of this, Latin America increased 9.0%, Europe 11.0%, and the Canada Consumer segment climbed 10.0% in U.S. dollar terms.
Revenue from the TALX segment increased 4.0% year over year to $99.4 million. The revenue upside resulted from an 8% year-over-year increase in Work Number revenue, and a 1.0% increase in Tax & Talent Management Services revenue.
North American Personal Solutions contributed $44.4 million, up 12.0% year over year. North American Commercial Solutions brought in $20.6 million, up 10.0% from the year-ago quarter.
Operating Results
Gross margin in the first quarter was 58.9%, up from 57.1% in the year-ago quarter. Operating margin was 23.1% as against 23.5% in the year-ago quarter. The margin performance was strong in North America Personal Solutions and North America Commercial Solutions, followed by marginal growth in USCIS, TALX and International. This was partially offset by 8% growth in general corporate expenses.
The company reported higher operating expenses with selling, general and administrative expenditure increasing 15.5% year over year and depreciation and amortization expenses rising 9.2%.
On a GAAP basis, net income from continuing operations was $57.3 million, or 46 cents per share versus $54.0 million or 42 cents per share in the comparable quarter last year. Excluding the impact of acquisition-related amortization expense (net of tax), adjusted net income was $72.1 million or 58 cents per share, compared with $68.0 million or 53 cents per share in the year-ago quarter.
Balance Sheet, Cash Flow & Share Repurchase
Equifax exited the quarter with $86.9 million in cash and cash equivalents, down from $119.4 million in the previous quarter. The decline was on account of lower cash generated from both operating and financing activities, as well as huge cash burnt up in investing activities.
Accounts receivables were $283.5 million. Total long-term debt was $1.02 billion, up from $999.6 million in the prior quarter. Cash provided by operating activities was $23.1 million, compared with $145.2 million in the prior quarter.
The company entered into a new, four-year unsecured revolving credit facility of $500 million, replacing a bank credit facility that was scheduled to expire on July 24, 2011. This will maintain its liquidity going forward.
Guidance
For the second quarter of 2011, Equifax expects revenue to be up 6.0% to 8.0% 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 58 cents and 61 cents.
Our Take
We are not very excited about the company’s first quarter performance, which just about matched the Zacks Consensus Estimate on the bottom line and missed on the top line. But we are optimistic about revenue growth prospects through the remainder of the year and improving margins in the second half.
Management’s commentary regarding strategic initiatives around new product innovation, broadening data assets through acquisitions and growing partnerships were encouraging.
In March, Equifax acquired U.K.-based Workload Financial Business Consultants Limited. With this strategic acquisition, the company broadened its U.K. data assets with unique deposit, savings and investment information.
Equifax will now be able to provide customers with an insight into the financial status, capabilities and business prospects of customers. This could eventually raise the demand for its products in the International market.
However, given the company’s strong correlation to consumer and financial markets, as well as its U.S. exposure, improvement in results is likely to be gradual, in pace with the country’s economic recovery. Stiff competition from Automated Data Processing Inc. (ADP) is a concern.
Currently, Equifax has a Zacks #3 Rank implying a short-term Hold rating.
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