Acxiom: Rising on a Minor Earnings Beat

Interactive marketing firm Acxiom (ACXM) rose 15% Thursday after reporting a decent quarter.

After the close of trading on June 24th, the company preannounced an ugly quarter, and I wrote that we should expect them to trade down when trading resumed and maybe buy some shares the next morning. Now we're sitting on a nice 27% gain, and there's room to go higher (click to enlarge).

Acxiom is by no means hitting the cover off the ball, but that's why we were able to pick up shares for a big Free Cash Flow Yield. Positives from Wednesday night's earnings announcement and conference call (see entire earnings call transcript here):

"Several of our clients have indicated to us that they expect to increase their marketing spending during the second half of our fiscal year. This anticipated increase in client spending coupled with our continued emphasis on expense management gives us confidence that our second half operating income performance will improve over the first half of the fiscal year."

"During Q2, we announced our expansion into the Middle East and North Africa with the acquisition of DMS, or Direct Marketing Services, in the kingdom of Saudi Arabia and United Arab Emirates. What’s most exciting about this developing market is where less than 1% of the $3 billion in advertising spend goes towards the targeted marketing like the services Acxiom provides"

I like that interest expense was down to $5.4 million for the quarter from $8.6 million a year earlier, due to lower average balance and lower interest rates (to the tune of 1.7%). Adding Depreciation and Amortization back to operating income, the company covers its interest expense 11.5 times. Nice.

I do not like that cash collection was unimpressive. Days sales outstanding (DSO's) were 62, up from 56 in March but still an improvement from last September's 68.

Wall Street earnings per share (EPS) estimates for the year ended March 2010 are currently right around my estimate of 50 cents. I'm reducing my D&A (Depreciation & Amortization) estimate and boosting my CAPEX (Capital Expenditures) number, which takes my Free Cash Flow estimate down to $120 million. Probably conservative, but that's fine. Netting out the $167 million in balance sheet cash, this company still has a 17% FCFY (Free Cash Flow Yield). That's a great deal for a company whose operational improvements are largely in front of them. I'm still long the shares, and think they'll head higher. (Click to enlarge.)

Disclosure: Long ACXM

Comments

[realist len:]

I used to work for this company until about a month ago. I would be very careful here they still make bad business decisions that cost the company millions of dollars after the contacts are signed; because they didn't do their homework. I will say it is much better managed that before but still has a long way to go, so if you are long plan on holding onto your shares for at least 2 years.

Oct 30 01:13 AM