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Equifax Inc. (EFX - Analyst Report) posted second-quarter 2013 adjusted earnings per share (EPS) of 92 cents, beating the Zacks Consensus Estimate of 90 cents. Results were up 27.8% from the year-ago quarter.

Revenues

Revenues grew 14.3% year over year to $586.9 million. The quarter’s result was better than the Zacks Consensus Estimate of $582.0 million. The upside is attributable to top-line growth across the board.

Segment wise, total U.S. Consumer Information Solutions (USCIS) revenues were $259.7 million, up 19.0% from the year-ago quarter. Among sub-segments, strong growth was noticed in Mortgage Solutions Services (up 38.0%), followed by the Consumer Financial Marketing Services segment (up 17.0%) and Online Consumer Information Solutions (up 17.0%).

International revenues (including Europe, Canada and Latin America) grew 9.0% year over year to $129.8 million, mostly due to 14.0% growth in the Europe segment, 7.0% in the Canada Consumer segment, followed by 5.0% growth in the Latin America segment.

Revenues from the Workforce Solutions segment increased 12.0% year over year to $123.2 million. The upside resulted from a 21.0% year-over-year increase in Verification Services revenues, partially offset by flat Employer Services revenues.

North American Personal Solutions contributed $51.5 million, reflecting 12.0% year-over-year improvement. North American Commercial Solutions generated $22.7 million, up 12.0% from the year-ago quarter.

Operating Results

Gross margin in the second quarter was 66.2%, up 270 basis points from 63.5% reported in the year-ago quarter. Operating margin was 26.9% as against 25.1% a year ago. Margin performance was better in the Workforce solution, North America Personal Solution and North America Commercial Solution segment. This was somewhat offset by weak performances in USCIS and International.

The company reported higher operating expenses with selling, general and administrative expenditure increasing 18.9% year over year.

On a GAAP basis, net income from continuing operations was $90.5 million or 73 cents per share versus $74.1 million or 60 cents per share in the comparable quarter last year. Excluding the impact of acquisition-related amortization expense, net of tax, adjusted net income was $113.4 million or 92 cents per share, up 29.0% from $88.0 million or 72 cents in the year-ago quarter.

Balance Sheet & Cash Flow

Equifax exited the quarter with $104.9 million in cash and cash equivalents, down from $107.6 million in the previous quarter. Accounts receivables were $318.5 million, up from $310.4 million in the previous quarter. Total long-term debt was $1.43 billion, slightly down from $1.45 billion in the prior quarter. Cash provided by operating activities was $140.5 million compared with $66.3 million in the prior quarter.

Guidance

Considering the recent domestic and international business activities, current foreign exchange rates and the expected slowdown in mortgage activities, the company expects consolidated revenues for fiscal 2013 to grow 10.0%–12.0% year over year. Adjusted earnings per share are expected to grow in the range of 21%–23% from the year-ago quarter.

Equifax believes that synergies from the acquisition of Computer Sciences Corp.’s Credit Services unit and momentum in core as well as non-mortgage activities will help the company achieve its full year targets.

Our Take

Equifax exited the second quarter beating the Zacks Consensus Estimate on both the top and bottom lines. We are optimistic about Equifax’ revenue growth prospects and margin expansion trend.

Management’s efforts such as strategic initiatives for product innovation, expansion of 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. and European exposure, we see a gradual improvement in results. Moreover, improving mortgage environment is a big positive for the stock. But stiff competition from Automatic Data Processing Inc. (ADP - Analyst Report), Fiserv Inc. (FISV - Analyst Report), Moody’s Corp. (MCO - Analyst Report) and uncertainty in the mortgage sector are concerns.

Currently, Equifax has a Zacks Rank #4.

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