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Dun & Bradstreet Corp. (DNB - Analyst Report) reported third quarter 2013 earnings of $2.01 per share, which handily beat the Zacks Consensus Estimate by 13 cents. Earnings per share rose 14.2% from the year-ago quarter and 31.4% sequentially.

Revenues

Core revenues increased a modest 0.5% year over year and 6.4% sequentially to $411.1 million, which however lagged the Zacks Consensus Estimate of $414.0 million.

The modest year-over-year growth was primarily due to weak performance from Risk Management Solutions (down 0.9%). Sales & Marketing Solutions revenues remained almost flat year over year.

Sequentially, revenues were positively impacted by a 16.1% rise in Sales & Marketing Solutions and a 1.6% increase in Risk Management Solutions revenues.

D&B recorded a year-over-year decline in revenues from North America. International revenues increased 0.5% from the year-ago quarter, primarily due to strong results from Europe and other International markets (up 1.3%). Asia-Pacific revenues dropped 0.7% in the third quarter.

Revenues from North America increased 9.7% sequentially. However, international revenues decreased 2.2% from the previous quarter, primarily due to a 9.9% fall in revenues from the Asia-Pacific region. Europe and other international markets climbed 4.3% from the previous quarter.

Margins

Operating margin remained almost flat year over year but expanded 520 basis points (bps) sequentially to 31.0%. The sequential expansion was primarily due to positive impact of the restructuring programs.   

Total operating costs as a percentage of revenues decreased 10 bps from the year-ago quarter, driven by significantly lower depreciation & amortization expense (down 60 bps) and selling & administration expense (down 330 bps), which fully offset higher operating expense (up 380 bps).

Sequentially, operating cost declined 520 bps due to a sharp decrease in selling & administration expense (down 330 bps) and lower depreciation & amortization expense (down 40 bps) and operating expense (down 160 bps).

Net income margin declined 20 bps from the year-ago quarter but increased 320 bps from the previous quarter to 19.0%.

Balance Sheet

D&B ended the quarter with $214.3 million in cash and cash equivalents, up from $196.5 million in the previous quarter. Total debt was $1.46 billion versus $1.41 billion at the end of the preceding quarter.

Guidance

For fiscal 2013, D&B continues to expect core revenues to increase in the range of 0% to 3.0%, before the effect of foreign exchange. Operating income is expected to decrease in the range of 3.0% to 6.0%. Earnings are expected to grow in the 8.0% to 11.0% range, before non-core gains and charges. D&B expects free cash flow between $270.0 million and $300.0 million.

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 the 2013 outlook reflects a sluggish macroeconomic environment in its operating markets. Further, a sequential decline in revenues 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 - Analyst Report), Yahoo! (YHOO - Analyst Report) and Moody’s Corp (MCO - Analyst Report) will hurt profitability going forward.

Currently, D&B has a Zacks Rank #4 (Sell).

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