Dun & Bradstreet Corp. (DNB), a well-known provider of business information, reported first-quarter earnings before non-core gains and one-time charges of $1.29 per share, beating the Zacks Consensus Estimate of $1.18 per share by 11 cents. However, EPS decreased 3% from the year-ago profit of $1.33 per share.
The company recorded a 62 cent tax benefit in the prior-year quarter and a 26 cent one-time charge in the first quarter of 2010 related to the 2010 patient protection and affordable care act. Excluding this, EPS came in at $1.29 in the quarter.
The results for the quarter were in line with the company’s expectations, as both the International and North American businesses performed in line with the company’s expectations. International revenues delivered double digit growth in the quarter, due to increased demand. The company expects the North American business to perform well in 2010 as the economy improves and demand strengthens.
Operating costs in the quarter increased 4% year over year. As a result, operating income before non-core gains and charges fell 11% to $102.7 million from the prior year, but was in line with management’s expectation.
Revenue
Core revenues were $397.2 million in the quarter, flat with the year-ago period, excluding foreign exchange impact but down 1% from last year excluding the effect of foreign exchange.
Including the impact of the divested business (the domestic portion of Italian operations in the second quarter of 2009) and the unfavorable impact of foreign exchange total revenue decreased 2.5% year-over-year to $397.2 million.
Core revenues were negatively impacted by Risk Management Solutions revenues (65.8% of total core revenue), which were down 2% year-over-year to $261.3 million, and a decrease of 6% in Internet Solutions revenue (7.2% of total core revenue) to $28.4 million.
This was offset by a growth in the Sales & Marketing Solutions segment (27% of total core revenue), which increased 6% year-over-year to $107.5 million, after the effect of foreign exchange. Risk Management Solutions were slightly lower than the company’s expectations, while Sales & Marketing Solutions performed better than expected.
DNBi continued to perform well in the quarter due to increase in price and increased penetration to 62% of Risk Management Solutions revenue, compared to 51% in the year-ago quarter. However, DNBi’s growth was offset by continued decline in legacy transactional products. For fiscal 2010, the company expects growth in Risk Management Solutions to decline in the low single digits with gradual improvement throughout the year.
Sales & Marketing Solutions improved from prior quarters as value added products benefited from the improving economy and retention rates improved in the quarter. The company expects this trend to continue through 2010 and expect Sales & Marketing Solutions’ revenue to grow in the low single digits.
A decrease in Internet Solutions revenue was primarily driven by weak 2009 upfront commitments and the subscription nature of these products.
Quarterly results were positively impacted by the strong performance of the International segment. Core revenues in the International segment increased 7% year-over-year to $92.3 million after the foreign exchange impact.
However, the fall in North America sales offset the increase in International revenue. Core revenues from the segment fell 5% year over year to $304.9 million after the foreign exchange impact but were in line with the management’s expectation.
Balance Sheet
DNB ended the quarter with $218.7 million in cash and cash equivalents, down $4.2 million from the previous quarter. Net debt (long-term and short-term debt less cash) decreased to $733.7 million or $14.41 per share at the end of the quarter versus $740.6 million or $14.38 per share in the previous quarter.
Operating cash flow was $128.9 million excluding the impact of legacy tax matters, resulting in free cash flow of $110.1 million in the quarter. Capital expenditure increased 61% to $2.9 million year over year. During the first quarter, DNB repurchased shares worth $25 million.
Deferred revenue was $577.2 million, up 2% (4% after the effect of foreign exchange).
Strategic Technology Investment
The company announced a two-year strategic technology investment program aimed at strengthening its leading position in commercial data and improving its current technology platform in February 2010. The program is expected to accelerate revenue and reduce expenses by improving data quality and timeliness, increasing the speed of product innovation and significantly reducing technology costs once the investment is complete.
In the first quarter of 2010, the company incurred $4.8 million of total pre-tax expense (or 6 cents per share) on the Strategic Technology Investment.
D&B expects to spend $110 to $130 million over approximately the next two years to complete the program, with $45 to $55 million of the spending expected to be incurred in 2010. Approximately 60% of the amount spent will be recognized as an increase to D&B’s non-core expenses and the remainder will be capitalized. The company expects annual cost savings of $35 to $50 million once the investment is complete.
Guidance Reaffirmed
D&B reiterated its 2010 guidance as given out during the fourth quarter of 2010. Core revenues are expected to be up 1% to 3%, before the effect of foreign exchange. Operating income is expected to be down 2% to up 2%, before non-core gains and charges. Growth in earnings per share is expected to be 1% to 6%, before non-core gains and charges. The company expects free cash flow of $240 – $270 million, excluding the impact of legacy tax matters but including the new strategic technology investment.
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