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Dun & Bradstreet Corp. (DNB - Analyst Report) reported first quarter 2013 earnings of $1.36 per share, which beat the Zacks Consensus Estimate by 3 cents. Earnings per share increased modestly from the year-ago quarter but declined 42.9% sequentially.

Revenues

Core revenues declined a modest 0.9% year over year but plunged 17.7% sequentially to $381.0 million in the first quarter. Including $18.4 million from divested operations in the year-ago quarter, revenues declined 5.4% year over year and 17.7% sequentially and missed the Zacks Consensus Estimate of $387.0 million.

The weak year-over-year result was primarily due to sluggish performance from Risk Management Solutions (down 1.9%), which fully offset growth (up 1.1%) in the Sales & Marketing Solutions segment. Sequentially, revenues were negatively impacted by a 17.8% plunge in Sales & Marketing Solutions segment and 9.0% decline in Risk Management Solutions.

D&B recorded a 0.8% year-over-year decline in revenues from North America. International revenues decreased 1.1% from the year-ago quarter, primarily due to weak results from Europe and other international markets (down 1.7%). Asia-Pacific remained almost flat in the first quarter.

Revenues from North America plunged 19.7% sequentially. International decreased 11.3% from the previous quarter, primarily due to a 14.7% decline in Europe and other international markets and a 6.3% decline in the Asia-Pacific region.

Margins

Operating margin was 24.1% compared with 27.6% in the year-ago quarter and 37.2% in the previous quarter. This was primarily due to lower revenue base.

Operating costs as a percentage of revenues declined to 75.9% from 77.2% in the year-ago quarter but were up from 65.7% in the previous quarter. Operating expense, selling & administration expense and depreciation & amortization expenses, as a percentage of revenues improved significantly, primarily reflecting stringent cost control and improving efficiency.  

Net income as a percentage of revenues was 14.6% compared with 17.0% in the year-ago quarter and 22.4% in the previous quarter.

Balance Sheet

D&B ended the quarter with $172.8 million in cash and cash equivalents, up from $149.1 million in the previous quarter. Total debt was $1.30 billion versus $1.29 billion at the end of the preceding quarter.

Guidance

D&B expects core revenues to remain flat to up 3.0%, before the effect of foreign exchange. Operating income is expected to decrease in the range of 6.0% to 3.0%. 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. 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 also hurt profitability going forward.

Currently, D&B has a Zacks Rank #3 (Hold).

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