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TransUnion (TRU) Stock Down Despite Earnings Beat in Q2

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TransUnion (TRU - Free Report) reported second-quarter 2016 adjusted earnings of 33 cents per share, beating the Zacks Consensus Estimate of 32 cents. With this, TransUnion has beaten earnings estimates four times in a row. Robust top-line growth, along with productivity improvement initiatives, drove the company’s profits.

In spite of the earnings beat, this risk & information solutions provider’s shares fell 4.7% following the earnings release.

The company generated GAAP net income of $17.3 million versus a loss of $2.6 million in the year-ago period. Strong growth momentum across all three segments led to the impressive bottom-line performance.

Revenues for the quarter increased 12% year over year to $425.7 million, comfortably beating the Zacks Consensus Estimate of $413 million. On a constant currency basis, the top line rose 14% year over year, driven by growth across all three segments.

TRANSUNION Price, Consensus and EPS Surprise

TRANSUNION Price, Consensus and EPS Surprise | TRANSUNION Quote

Segment Details

Revenues at the USIS segment came in at $256.8 million, up 10.2% year over year. The segment saw solid growth in financial services, rental screening, insurance and healthcare verticals. Decision Services revenue increased significantly by 16% from the year-ago quarter to $50.7 million. Marketing Services revenue was $37.9 million, up 8% from the prior-year period, driven by higher batch activity resulting from demand for solutions such as CreditVision. Online Data Services revenue grew 9% year over year to $168.1 million, driven by robust healthcare and insurance markets.

International segment revenues rose 15% year over year to $77.6 million. However, on a constant currency basis, revenues grew an impressive 24%. While revenues from developed markets increased 16% (20% on a constant currency basis) to $27.8 million, that from emerging markets went up 14% (up 26% on a constant currency basis) to $49.8 million. Canada and Hong Kong stood out with solid growth, along with emerging markets like India, Asia-Pacific and Latin America. The company saw 10% growth in revenues coming from the acquisition of CIFIN (Central de Informacion Financiera) in Colombia.

Revenues at the Consumer Interactive segment came in at $106.5 million, up 16% year over year, driven by significant revenue growth from both direct and indirect channels.

Margins

Adjusted EBITDA was $159 million, an increase of 18% from the prior-year quarter. Adjusted EBITDA margin was 37.5%, an increase of 180 basis points year over year.

The USIS segment’s adjusted operating income grew 12% year over year, which led to a 40 basis point expansion in operating margin. The increase was driven by growth in the top line.

The International segment’s adjusted operating margin increased 590 basis points to 31.1%, driven by strong revenue growth and cost reduction focus.

The Consumer Interactive segment’s adjusted operating margin rose 410 basis points to 40.1%. The increase was driven by top-line growth as well as improved productivity.

Acquisition

During the quarter, the company acquired Auditz, a healthcare services business that uses sophisticated proprietary technology to help healthcare providers identify and recover payments. Through this acquisition, TransUnion will be able to provide better facilities to its customers while analyzing their unpaid claims files, and of course, greater yield for them equates to more revenue for TransUnion. The company expects to reap benefits from this deal in the quarters to come.

Balance Sheet and Cash Flow

As of Jun 30, 2016, TransUnion had cash and cash equivalents of $141.3 million. Long-term debt was $2,350.3 million at quarter end. For the first six months of the year, cash flow from operating activities was $149.5 million.

Guidance

Based on second-quarter results, TransUnion revised its 2016 guidance. Consolidated revenues are now expected in the range of $1.665 billion to $1.675 billion (up from earlier expectations of $1.63 billion and $1.65 billion), reflecting year-over-year growth of about 12%.

Adjusted EBITDA is now expected to come in the range of $613 million to $618 million (up from the earlier expectation of $600 million and $610 million), up 18–19% year over year. The outlook for 2016 adjusted earnings per share was raised from $1.30 and $1.34 to a range of $1.37–$1.39, which now reflects earnings growth of 25–27% year over year.

For third-quarter 2016, consolidated revenues are expected to come in the range of $420 million to $425 million, up about 9% to 10% from the prior-year quarter. Adjusted EBITDA for the quarter is likely to be in the range of $155–$158 million, an increase of about 11–13% from the prior-year quarter. Adjusted earnings per share are expected to be between 34–35 cents during the quarter, up 12–15% year over year.

TransUnion currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks worth a look include Carlisle Companies Incorporated (CSL - Free Report) , Leucadia National Corporation and Swire Pacific Limited (SWRAY - Free Report) . Each of these stocks holds a Zacks Rank #2 (Buy).

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