Tags: EFX | Equifax | credit | merger

Equifax: Profits Hit by Merger Costs

By    |   Monday, 01 Aug 2011 01:39 PM

Equifax (EFX), one of the three major U.S. credit reporting agencies, says costs associated with merging overseas units coupled with weakness in the mortgage sector is eating into profits at a time when business is generally good.

Revenue during the company's second quarter of fiscal 2011 was up 5.7 percent year over year to $487.1 million. Yet a recent merger involving Brazilian subsidiaries hiked costs, which took a toll on profits.

Net income from continuing operations attributable to Equifax during the quarter came to $34.5 million, a 40 percent decrease from the prior year driven by a $27.8 million loss on the merger of Brazilian businesses.

"Continued weakness in the U.S. mortgage sector that weighed on some of our core operating segments was offset by double digit revenue growth in International, North America Personal Solutions, and North America Commercial," says Richard F. Smith, Equifax's Chairman and Chief Executive Officer.

"The merger of our Brazilian operations with Boa Vista Servicos creates a much stronger competitor in one of the most attractive markets in Latin America."

The company remains optimistic.

"Economic and regulatory uncertainty exists; however, we are optimistic about our opportunities for the second half of 2011," Smith says. "Improving trends in core U.S. credit, strong performance with a couple of our more unique product offerings, improved operating performance in International, and continued market share gains in North America Personal Solutions and Commercial will offset the challenges we face in the mortgage market."

Barclays Capital initiated coverage of the company with an equal weight recommendation on the stock several months ago. Stifel Nicolaus upgraded the stock to buy from hold late last year.

Rising trends

The good thing is that, as credit improves, the company may see more business.

According to Equifax's Credit Trend Report for June 2011, new credit dollars are increasing for auto, bankcard, student loan, and home equity revolving lines on a year-to-date basis.

Total new credit available rose to $240 billion in April 2011 from $209 billion in April 2010, an increase of nearly 15 percent. While this number is far below the $400 million-plus performances of 2006 and 2007, the figure does mark a turn from after four years of declines, Equifax says.

"Trouble spots remain," says Michael Koukounas, Equifax's Senior Vice President of Client Services in a statement.

"While many delinquencies have peaked, severely delinquent home finance loans — the shadow inventory — remain elevated. Student loan delinquencies and write-off balances have not peaked and continue to increase."

But things are turning around. "Positive momentum is evident in that loans opened since 2008 with much tighter underwriting are doing much better than loans booked between 2005 and 2007. More than two-thirds of all delinquent balances are from these earlier loans," Koukounas adds.

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Equifax (EFX), one of the three major U.S. credit reporting agencies, says costs associated with merging overseas units coupled with weakness in the mortgage sector is eating into profits at a time when business is generally good. Revenue during the company's second...
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2011-39-01
Monday, 01 Aug 2011 01:39 PM
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