Dun & Bradstreet Quarter In-Line - Analyst Blog

Dun & Bradstreet Corp. (DNB), a well-known provider of business information, reported fiscal fourth-quarter earnings before non-core gains and one-time charges of $1.75 per share, in line with the Zacks Consensus Estimate of $1.75 per share. EPS results decreased 6.4% from the year-ago profit of $1.87 per share.

Results for the full year 2009 were in line with the company’s expectations, as the International segment performed above expectations, offset by the decline in North American revenue due to difficult economic conditions, which impacted customers. However, the company expects the North American business to improve in 2010.

Meanwhile, core revenues (excluding revenues of $12.0 million in the year-ago period associated with the domestic portion of Italian operations which have been divested) were $463.7 million in the quarter, flat with the year-ago period. Including the impact of the divested business and the unfavorable impact of foreign exchange, total revenue decreased 2.3% to $463.7 million.

Core revenues were positively impacted by Risk Management Solutions revenues (59.7% of total core revenue), which were up 1.5% year over year to $276.9 million, offset by flat revenues from Sales & Marketing Solutions (34% of total core revenue) to $157.8 million, and a decrease of 9.7% in Internet Solutions revenue (6.3% of total core revenue) to $29.0 million, after the effect of foreign exchange.

Quarterly results were positively impacted by the strong performance of the International segment. Core revenues in the segment increased 28.2% year over year to $106.3 million after the foreign exchange impact.

However, the fall in North America sales partially offset the increase in revenue. Core revenues from the segment fell 5.9% year over year to $357.4 million after the foreign exchange impact.

Operating income before non-core gains and charges fell 10% to $157.0 million from the prior year. During the current quarter, the company also incurred transition costs of $2.9 million.

Operating Performance

Dun & Bradstreet ended the quarter with $222.9 million in cash and cash equivalents, up $35.6 million from the previous quarter. Net debt (long-term and short-term debt less cash) increased to $740.6 million or $14.38 per share at the end of the quarter versus $708.2 million or $13.62 per share in the previous quarter.

The company has an impressive operating cash flow stream. Operating cash flow excluding the impact of legacy tax matters for 2009 was $361.5 million, resulting in a free cash flow excluding the impact of legacy tax matters of $296.2 million.

Finally, to increase shareholder value, the company distributes free cash in the form of buybacks and dividends. During 2009, Dun & Bradstreet repurchased shares worth $150 million. Further, the company increased its quarterly cash dividend to 35 cents from 34 cents per share.

Strategic Technology Investment

Dun & Bradstreet announced a two-year strategic technology investment program aimed at strengthening its leading position in commercial data and improving its current technology platform. 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.

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 the company’s non-core expenses and the remainder as capital expenditures. Dun & Bradstreet expects annual cost savings of $35 to $50 million once the investment is complete.

2010 Financial Flexibility Program

To manage costs and expand margins, Dun & Bradstreet has been implementing various financial flexibility programs since 2000. In 2010, D&B expects to come up with several reengineering initiatives aimed at greater efficiency and productivity. The company intends to invest only in high-margin businesses, while divesting the less profitable ones.

Under its restructuring initiative, D&B plans to improve its organizational design and efficiency, simplify the technology infrastructure and data center operations, centralize management of key cost drivers, consolidate vendors and contract negotiation and automate/outsource data collection and call center operations.

D&B expects its ongoing reengineering initiatives to create $75 million to $80 million of financial flexibility in 2010. The company expects to incur transition costs of approximately $7 million to $12 million and pre-tax restructuring charges totaling $15 million to $20 million associated with its ongoing reengineering efforts.

Fiscal Year 2010 Guidance

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.

Though Dun & Bradstreet faces competition from R.R. Donnelley & Sons (RRD), Iron Mountain (IRM), Hewitt Associates (HEW), Experian (EXPGY) and Equifax (EFX), its competitive position remains strong.