Equifax Inc. (EFX) reported second quarter adjusted earnings per share of 58 cents exceeding the Zacks Consensus Estimate by a penny.
The adjusted earnings excluded the gain from sale of the APPRO product line and acquisition-related amortization expense.
Revenues
Revenues in the quarter were $460.7 million, up 7% from $429.1 million in the year-ago quarter, but were below the Zacks Consensus Estimate of $464 million. Revenues gained by a percent from favorable foreign exchange rates. The year-over-year upside can be attributed to sales increase in segments, such as the North America Personal Solutions, North America Commercial Solutions, International and TALX segments. Moreover, the revival in the economy and clients’ adoption of new product innovations also helped Equifax generate higher revenues.
Segment-wise, North American Commercial Solutions contributed $18.6 million, up 18% year over year. The TALX segment generated $99.0 million, which was up 15% from the comparable quarter last year. TALX segment revenues increased as a result of the 28% year-over-year increase in Work Number revenue and 4% year-over-year increase in Tax & Talent Management Services revenue.
International (including Europe, Canada and Latin America) contributed $118.2 million, up 12% year over year. Of this, Europe was down 1% year over year, Latin America up 21% and Canada Consumer segment up 15%, in U.S. dollar terms. North American Personal Solutions contributed $40.3 million, up 8% year over year. U.S. Consumer Information Solutions revenue was $184.6 million, compared to $184.7 million from the year-earlier quarter.
Operating Results
Operating margin was 23% versus 23.8% in the year-ago quarter. This decline can be attributed to the substantial increase in total operating expenses, which jumped 8.5% to $354.9 million (77% of revenues) in the quarter from $327.1 million (76.2% of revenues) in the year-ago quarter.
Net income on a GAAP basis in the quarter was $71.3 million or 57 cents per share versus net income of $59.6 million or 47 cents in the comparable quarter last year. Excluding the impact of acquisition-related amortization expense and a restructuring charge (both net of tax), but including results of discontinued operations, adjusted net income per share was 58 cents, compared to 57 cents in the second quarter of 2009.
Balance Sheet
Equifax exited the quarter with $70.1 million in cash and cash equivalents, down $7 million sequentially. Total long-term debt was $979.4 million, down from $990.6 million in the prior quarter. Cash provided by operating activities was $101.2 million, compared to $37.7 million in the prior quarter.
Additionally, Equifax repurchased 1.7 million of common shares during the second quarter of 2010 for $55.4 million. At the end of the second quarter, the company had authorization for future share repurchases worth $207.2 million.
Guidance
For the third quarter of 2010, Equifax expects revenues to be up in the mid to upper single digits from the year-ago quarter, based on contributions from domestic and international businesses. Excluding the impact of acquisition-related amortization expense and the gain that will be recognized from the sale of the Direct Marketing Services (DMS) unit earlier this month, Equifax expects adjusted earnings per share to range between 55 cents and 59 cents.
Our Take
We believe Equifax is well-positioned to benefit from its leadership in important markets, heightened consumer concern regarding identity theft and strength in international markets. While Equifax’s core business remains solid with the sale of its direct marketing division, the company would be able to focus more on its main business. The company is also enjoying an expansion mode through new product launches and international growth.
However, given the strong correlation to consumer and financial markets, as well as the company’s U.S. exposure, the results will recover slowly, keeping pace with the country’s economic recovery.
We currently have a short-term Sell rating (Zacks #4 Rank) on Equifax shares.
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