ADP Automatic Data Processing Inc

Equifax Inc. (EFX) has posted fourth quarter 2011 adjusted earnings per share (EPS) of 68 cents, inching past the Zacks Consensus Estimate by a penny. Results were up 9.7% from 62 cents reported in the year-ago quarter. The adjusted EPS excludes acquisition-related amortization expense. Management attributed the improvement to diverse product offerings which expanded Equifax’ scope within the market.

Revenue

Revenue grew 5.7% year over year to $509.7 million. The upside could be attributed to top-line growth across the board, partially offset by lackluster performance by the International segment.

Segment wise, total U.S. Consumer Information Solutions (USCIS) revenue was $215.6 million, up 13.0% from the year-ago quarter. Among sub-segments, strong growth was noticed in Online Consumer Information Solutions (17.0%), followed by Mortgage Solutions Services (13.0%). The company witnessed a relatively slower growth rate in its Consumer Financial Marketing Services segment (2.0%).

Total International (including Europe, Canada and Latin America) revenue slid 8.0% year over year to $116.3 million. Of this, Latin America decreased 26.0%, Europe grew 15.0%, and the Canada Consumer segment climbed 3.0% in U.S. dollar terms.

Revenue from the TALX segment increased 3.0% year over year to $105.8 million. The upside resulted from an 11.0% year-over-year increase in T Verification Services revenue and Employer Services revenue.

North American Personal Solutions contributed $45.6 million, reflecting a 21.0% year-over-year improvement. North American Commercial Solutions brought in $26.4 million, up 6.0% from the year-ago quarter.

Operating Results

Gross margin in the fourth quarter was 61.9%, up from 59.9% in the year-ago quarter. Operating margin was 24.7% as against 22.8% a year ago. The margin performance was better in USCIS, International and North America Commercial Solutions, partially offset by weak performances by North America Personal Solutions and TALX.

The company reported higher operating expenses with selling, general and administrative expenditure increasing 8.5% year over year, partially offset by a 1.9% decline in depreciation and amortization expenses.

On a GAAP basis, net income from continuing operations was $72.9 million or 60 cents per share versus $62.2 million or 50 cents per share in the comparable quarter last year. Excluding the impact of acquisition-related amortization expense (net of tax) and a tax benefit, adjusted net income was $83.0 million or 68 cents per share, compared with $76.9 million or 62 cents per share in the year-ago quarter.

Balance Sheet, Cash Flow & Share Repurchase

Equifax exited the quarter with $127.7 million in cash and cash equivalents, up from $102.0 million in the previous quarter. Accounts receivables were $284.4 million. Total long-term debt was $1.01 billion, down from $1.04 billion in the prior quarter. Cash provided by operating activities was $149.7 million, compared with $112.0 million in the prior quarter.

The company bought back 1.9 million of it common shares for $67.1 million during the quarter. At December 31, 2011, the remaining authorization for future share repurchases was $112.1 million.

Guidance

For the first quarter of 2012, Equifax expects revenue to be up 9.0% to 12.0% from the year-ago quarter, based on contributions from domestic and international businesses and the ongoing foreign exchange rates. Excluding the impact of acquisition-related amortization expense, Equifax expects adjusted earnings per share to range between 64 cents and 67 cents. The Zacks Consensus Estimate for the first quarter is 65 cents, which is at the higher end of the company’s guidance.

Our Take

We are not very excited about the company’s fourth quarter performance, which marginally surpassed the Zacks Consensus Estimate on the bottom line. But we are optimistic about revenue growth prospects and improving margins through fiscal 2012.

Management’s efforts regarding strategic initiatives around product innovation, 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.

 
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