Equifax Barely Beats On Revenue Growth

| About: Equifax Inc. (EFX)
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Equifax Inc. (EFX) has posted third quarter 2011 adjusted earnings per share (EPS) of 65 cents, inching past the Zacks Consensus Estimate by a penny. The quarter’s results were up 8.3% from 56 cents reported in the year-ago quarter. The adjusted EPS excludes acquisition-related amortization expense.


Revenue grew 3.5% year over year to $490.4 million. The upside could be attributed to top-line growth across the board, partially offset by lackluster performance from the International segment.

Segment wise, total U.S. Consumer Information Solutions (USCIS) revenue was $202.0 million, compared with $194.0 million in the year-earlier quarter. Among sub-segments, strong growth was noticed in Online Consumer Information Solutions, followed by Consumer Financial Marketing Services. However, the overall growth was rationalized by a flat year-over-year growth in Mortgage Solutions Services.

Total International (including Europe, Canada and Latin America) revenue slid 3.2% year over year to $118.6 million. Of this, Latin America decreased 24.0%, Europe grew 16.0%, and the Canada Consumer segment climbed 16.0% in U.S. dollar terms.

Revenue from the TALX segment increased 4.0% year over year to $102.8 million. The upside resulted from a 4.0% year-over-year increase in both Tax & Talent Management Services revenue and Work Number revenue.

North American Personal Solutions contributed $45.5 million, reflecting a 14.0% year-over-year improvement. North American Commercial Solutions brought in $21.5 million, up 16.0% from the year-ago quarter.

Operating Results

Gross margin in the third quarter was 61.4%, up from 60.3% in the year-ago quarter. Operating margin was 24.8% as against 23.3% a year ago. The margin performance was strong in North America Personal Solutions and North America Commercial Solutions, moderate in USCIS, TALX and International.

The company reported higher operating expenses with selling, general and administrative expenditure increasing 3.9% year over year, partially offset by a 2.2% decline in depreciation and amortization expenses.

On a GAAP basis, net income from continuing operations was $66.7 million or 54 cents per share versus $61.3 million or 49 cents per share in the comparable quarter last year. Excluding the impact of acquisition-related amortization expense (net of tax), adjusted net income was $80.5 million or 65 cents per share, compared with $75.7 million or 60 cents per share in the year-ago quarter.

Balance Sheet, Cash Flow & Share Repurchase

Equifax exited the quarter with $102.0 million in cash and cash equivalents, down from $108.7 million in the previous quarter. Accounts receivable were $275.8 million. Total long-term debt was $1.04 billion, up from $981.5 million in the prior quarter. Cash provided by operating activities was $112.0 million, compared with $123.9 million in the prior quarter.

The company bought back 1.4 million of its common shares for $43.9 million during the quarter. At September 30, 2011, remaining authorization for future share repurchases was $179.3 million.


For the fourth quarter of 2011, Equifax expects revenue to be up 8.0% to 10.0% from the year-ago quarter, based on contributions from domestic and international businesses and ongoing foreign exchange rates. Excluding the impact of acquisition-related amortization expense, Equifax expects adjusted earnings per share to range between 65 cents and 68 cents. The Zacks Consensus Estimate for the third quarter is 68 cents, which is at the higher end of the company’s guidance.

Our Take

We are not very excited about the company’s third quarter performance, which just about matched the Zacks Consensus Estimate on the bottom line. But we are optimistic about revenue growth prospects and improving margins through the remainder of the year.

Management’s commentary regarding strategic initiatives around new product innovations, broadening data assets through acquisitions and continuous share gains in North America were encouraging.

However, given the company’s strong correlation to consumer and financial markets, as well as its U.S. exposure, we see a gradual improvement in results. But stiff competition from Automatic Data Processing Inc. (ADP) is a concern.

Currently, Equifax has a Zacks #3 Rank implying a short-term Hold rating.