Dun & Bradstreet Earnings Preview

Apr.27.11 | About: Dun & (DNB)

Dun & Bradstreet Corp. (NYSE:DNB) is scheduled to release its first quarter 2011 results on April 27, after the closing bell. The Zacks Consensus Estimate for the quarter is $1.27 per share. D&B has been consistently surpassing earnings estimates in the last four quarters with a trailing four-quarter average of 4.38%. In the upcoming quarter too, we expect it to beat the Zacks Consensus Estimate.

Fourth Quarter 2010 Recap

D&B reported fourth quarter earnings, before non-core gains and one-time charges, of $1.92 per share, beating the Zacks Consensus Estimate of $1.88. Earnings per share, on a pro forma basis, increased 9.7% from $1.75 earned in the year-ago quarter. Net income before non-core gains and one-time charges, were $96.2 million, up 5.3% year over year, with net margin improving 30 basis points (bps) on a year-over-year basis.

Core revenues increased 7.2% year over year (both before and after any foreign exchange impact) to $481.7 million. Total revenue was also $481.7 million, up 3.9% year over year but slightly lower than the Zacks Consensus Estimate of $482.0 million.

Results for the quarter were positively driven by strength across all business segments.

For further details, please refer to Dun & Bradstreet Beats Consensus

2011 Guidance

D&B expects core revenues to be up 5.0% to 8.0%, before the effect of foreign exchange. Operating income is expected to increase 2.0% to 6.0%, before non-core gains and charges.

Growth in earnings per share is expected to be 6.0% to 10.0%, before non-core gains and charges. The company expects free cash flow to be between $240 million and $270 million, excluding the impact of legacy tax matters but including the new Strategic Technology Investment.

The company expects to earn $75.0 million to $85.0 million from its ongoing financial flexibility program in 2011.

Estimate Revision Trend

For the current quarter, of the eight analysts covering the stock, only one raised its estimates in the last 30 days. There was no movement in the opposite direction.

For fiscal 2011, there was just one upward revision in the last 30 days; however, the EPS estimate for fiscal 2011 increased by a penny to $6.00.

Conclusion

We are positive on the stock on a long-term basis as a result of D&B’s high-margin business model, international growth potential, emerging market growth opportunities, strategic investments, incremental cost savings and new product pipeline.

However, a sluggish macro environment in North America and weakness in Europe remain concerns. Acquisitions have played a major role in international growth and we expect integration to remain a primary concern going forward. Moreover, a high net debt will hurt financial stability in future.

Additionally, the company faces competition from Equifax Inc. (NYSE:EFX) and Moody’s Corp. (NYSE:MCO).

We, therefore, maintain our Neutral recommendation on a long-term basis (six to 12 months).

Currently, D&B has a Zacks #3 Rank, which implies a Hold rating in the short term (one to three months).