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Why Is Equifax (EFX) Down 3.4% Since its Last Earnings Report?

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It has been about a month since the last earnings report for Equifax, Inc. (EFX - Free Report) . Shares have lost about 3.4% in that time frame.

Will the recent negative trend continue leading up to its next earnings release, or is EFX due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

First-Quarter Results

Equifax Inc. reported strong first-quarter 2018 results with revenues and earnings surpassing the Zacks Consensus Estimate. Earnings of $1.43 per share beat the consensus mark by 6 cents but declined 0.7% year over year. The year-over-year decline in the bottom line was due to buyout-related amortization expenses and costs associated with the investigation, rectification, legal and professional services and improved security services in relation to the cybersecurity incident.

These headwinds offset the benefit from the new tax (Tax Cuts and Jobs Act) law. The company enjoyed a tax benefit of $3 million in first-quarter 2018. Notably, the company’s bottom line exceeded the guidance by 4 cents. Equifax had anticipated earnings per share for first-quarter 2018 to be in the range of $1.34-$1.39.

Revenues

Equifax’s first-quarter 2018 revenues of $865.7 million beat the Zacks Consensus Estimate of $854 million. The figure was up 4.1% year over year and 3% on a local currency basis. Further, the top line exceeded the guidance by $5.7 million. Equifax had anticipated first-quarter 2018 revenues to be in the range of $850-$860 million. Strength across International and Workforce Solutions segments contributed toward year-over-year growth of revenues. These were, however partially offset by the company’s declining business from U.S. Information Solutions (USIS) and Global Consumer Solutions segments.

Revenues by Segment

Revenues from the International division (including Europe, the Asia Pacific, Canada and Latin America) were $244.5 million, up 13% year over year and 9% on a local currency basis. Further, the company registered growth in every international region with revenues increasing 14%, 15%, 10% and 13% in Asia-Pacific, Europe, Latin America and Canada, respectively. On a local currency basis, revenues from Asia-Pacific, Europe, Latin America and Canada grew 11%, 1%, 15% and 8%, respectively. It accounted for 28.2% of total revenues. Revenues from the Workforce Solutions segment were $211.1 million, up 6% from the year-ago quarter. This includes Verification Services revenues of $128.4 million (up 12% y/y) and Employer Services revenues of $82.7 million (down 3% y/y). It contributed 24.4% of total revenues.

Revenues from USIS division were $306.9, down 1% from the year-ago quarter. The decline was due to the negative impact of the cybersecurity incident. The division suffered revenues decline of 2% each at Online Information Solutions ($219.7 million) and Financial Marketing Services ($45.5 million) sub-segment, while sales at Mortgage Solutions grew 8% to $41.7 million. It accounted for 35.5% of total revenues. Revenues from Global Consumer Solutions segment were $103.2 million, down 3% year over year and 4% on a local currency basis. It contributed 11.9% of total revenues.

Operating Results

Adjusted EBITDA in first-quarter 2018 decreased 3.3% year over year to $290 million. Adjusted EBITDA margin was 33.5% in the first quarter of 2018 compared with 36% in the year-ago quarter. Adjusted EBITDA margin for International was 29.4% in first-quarter 2018 compared with 31.2% in the year-ago quarter. Adjusted EBITDA margin for Workforce Solutions was 48.9% in first-quarter 2018 compared with 50.2% in the year-ago quarter. Adjusted EBITDA margin for USIS was 44.1% in first-quarter 2018 compared with 48.6% in the year-ago quarter. Adjusted EBITDA margin for Global Consumer Solutions was 33.8% in first-quarter 2018 compared with 31.7% in the year-ago quarter.

Operating income in first-quarter 2018 decreased 34% year over year to $144.2 million. Operating margin was 16.7% compared with 26.3% in the year-ago quarter. Operating expenses rose 17.6% from the year-ago quarter to $721.5 million. Operating margin for International segment was 15% compared with 13.8% in the year-ago quarter.  Operating margin for Workforce Solutions was 42.7% in first-quarter 2018 compared with 44.7% in the year-ago quarter. Operating margin for USIS was 36.1% in first quarter of 2018 compared with 41.8% in the year-ago quarter. Operating margin for Global Consumer Solutions segment was 29.2% in first-quarter 2018 compared with 29.1% in the year-ago quarter. Net income of $90.9 million for the reported quarter was down 41% from the year-ago quarter.

Balance Sheet and Cash Flow

Equifax exited first-quarter 2018 with cash and cash equivalents of $249.3 million compared with $123.2 million in the year-ago quarter. As of Mar 31, 2018, long-term debt was $1,739.6 million compared with $1,739 million at the end of 2017. The company generated $119.6 million of cash from operating activities in the reported quarter compared with $103.7 million in the prior-year period. In first-quarter 2018, the company paid dividend of $46.9 million to its shareholders. The payment remained flat with the year-ago quarter.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. There has been one revision higher for the current quarter compared to five lower.

Equifax, Inc. Price and Consensus

VGM Scores

At this time, EFX has a nice Growth Score of B, though it is lagging a bit on the momentum front with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Our style scores indicate that the stock is more suitable for growth investors than momentum investors.

Outlook

Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. Notably, EFX has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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