DNB Beats, Reaffirms Outlook

Dun & Bradstreet Corp. (DNB - Snapshot Report), a well-known provider of business information, reported fiscal third-quarter earnings before non-core gains and one-time charges of $1.13 per share, beating the Zacks Consensus Estimate by a penny. EPS results increased one cent from the year-ago profit of $1.12 per share.
 
Meanwhile, core revenues (excluding revenues of $10.2 million in the year-ago period associated with the domestic portion of Italian operations which have been divested) were $399 million in the quarter, flat with the year-ago period. Revenues were slightly above the Zacks Consensus estimate of $396.2 million. Including the impact of the divested business and the unfavorable impact of foreign exchange, total revenue decreased 2.5% to $399 million.
 
Core revenues were positively impacted by Sales & Marketing Solutions revenues (26.5% of total core revenue), which were up 2% year over year to $105.9 million, offset by flat revenues from Risk Management Solutions (66% of total core revenue) to $264.8 million, and a decrease of 9% in Internet Solutions revenue (7.5% of total core revenue) to $28.3 million, after the effect of foreign exchange.
 
Quarterly results were in line with management’s expectation due to the strong performance of the International segment. Core revenues in the International segment increased 13% year over year to $88.2 million after the foreign exchange impact.
 
However, the fall in North America sales led to a decrease in revenue. Core revenues from the segment fell 3% year over year to $310.8 million after the foreign exchange impact. However, it was in line with the company’s expectation.
 
Operating income before non-core gains and charges fell 3% to $104.8 million from the prior year. During the current quarter, the company also incurred transition costs of $4 million, which hurt the margin.
 
The company aims to invest only in high margin businesses, while divesting the less profitable ones. We remain positive on its growing customer relationship and customer renewal rates. Around 64% of North America risk management customers renewed their subscriptions in the current quarter.
 
While, Dun & Bradstreet faces competition from R.R. Donnelley & Sons (RRD - Snapshot Report), Iron Mountain (IRM - Analyst Report), Hewitt Associates (HEW - Analyst Report), Experian (EXPGY) and Equifax (EFX - Analyst Report), DNB's competitive position remains strong.
 
Operating Performance
 
DNB ended the quarter with $187.3 million in cash and cash equivalents, down $39.1 million from the previous quarter. Net debt (long-term and short-term debt less cash) increased to $708.2 million or $13.62 per share at the end of the quarter versus $642.2 million or $12.21 per share in the previous quarter.
 
The company has an impressive operating cash flow stream. Operating cash flow excluding the impact of legacy tax matters year to date was $292 million, resulting in a free cash flow excluding the impact of legacy tax matters of $244.1 million.
 
Finally, to increase shareholder value, the company distributes free cash in the form of buybacks and dividends. During the quarter, DNB repurchased shares worth $60 million. Back in August, the company declared a quarterly cash dividend of 34 cents per share.
 
Guidance
 
The company reaffirmed its guidance for the full year. Core revenues are expected to be down 1% to up 1%, before the effect of foreign exchange. Operating income is expected to be down 3% to up 1%, before non-core gains and charges. Growth in earnings per share is expected to be 1% to 5%, before non-core gains and charges. The company expects free cash flow of $285 – $315 million, excluding the impact of legacy tax matters.