Dun & Bradstreet Struggling For Growth

By Ryan C. Fuhrmann | May 09, 2012 AAA

Dun & Bradstreet (NYSE:DNB) focuses on helping business owners determine the credit worthiness of other existing and potential business customers, which it does on a global basis. But the firm has struggled to grow in recent years. Downbeat guidance sent the stock reeling after first quarter results were released.

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First Quarter Recap
Reported sales fell 0.2% to $402.8 million, but were up 1% to $390.1 million, when excluding revenue from divested businesses. On this core revenue basis, sales grew 8% internationally to account for almost 27% of the total top line. Asia saw the strongest performance and reported 16% growth, with Europe and other markets more anemic and reporting only 2% growth. North America struggled, with a 1% sales decline to account for the remaining 73% of revenue.

Total operating income fell 17% to $74.4 million as both geographic regions reported profit declines. Asian profits fell further into negative territory and Dun & Bradstreet announced it was closing a Chinese division following "allegations that certain data collection practices may have violated local Chinese consumer data privacy laws." Europe and other international business grew 26%, but was ineffective in offsetting the declines in the other markets.

A 72% drop in income tax expense allowed net income to increase 27% to $63.4 million. Share buybacks pushed earnings up by 32% to $1.32 per diluted share. Backing out charges, management deemed to be nonrecurring or not reflective of its core business, earnings grew 5% to $1.35 per diluted share. Its estimate of free cash flow jumped 28% to $152 million, or approximately $3.16 per diluted share.

SEE: A Breakdown Of Stock Buybacks

Outlook and Valuation
For the year, Dun & Bradstreet projects "core revenue growth" of as much as 3% and diluted earnings growth between 8 and 11%. Analysts currently expect a slight sales decline, total revenue of $1.75 billion and earnings of $6.70 per share. The company expects free cash flow in a range of $275 million and $305 million, or about $5.71 to $6.34 per diluted share. Based on these projections, the forward P/E is 8.8 and forward free cash flow multiple is 10.2, if it hits the high end of guidance.

SEE: 5 Must-Have Metrics For Value Investors

The Bottom Line
Dun & Bradstreet possesses a unique and differentiated business model. Its data collection efforts help other businesses determine the creditworthiness of other businesses. In contrast, peers including Equifax (NYSE:EFX) and Fair Isaac (NYSE:FICO) focus on the credit quality of individuals.

The only problem is that Dun & Bradstreet hasn't been growing much lately. Its sales are above pre-crisis levels, but reported profits are still falling below. The mature North American market isn't helping, and international growth efforts have yet to pay off. The company has plans to push its data services onto smartphones that are powered by Google (Nasdaq:GOOG) and Apple (Nasdaq:AAPL), but have so far failed to improve its overall fortunes.

SEE: Earning Forecasts: A Primer

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At the time of writing, Ryan C. Fuhrmann did not own shares in any of the companies mentioned in this article.

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