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Dun & Bradstreet: Where Data Goes to Die


As specialized information companies eat DNB's lunch, the company's sales tactics and its financials leave more than a bit to be desired.

A few weeks ago I tweeted about receiving several cold calls from Dun & Bradstreet (NYSE:DNB) over a period of several weeks. The obnoxiousness of the voice mails ("…if you do not get back to us with information about your company, it could seriously harm your business" kind of stuff) and the fact that the company had just ended an effort to sell itself, got me looking at what was going on. Here are some of the lowlights I found in the financials:
  • As of last quarter DNB had cash assets of about $520 million, and cash liabilities -- including pensions -- of $2.5 billion.
  • Revenues have completely stalled if not worse, with 2012 likely to end 5% below 2011, 2013 estimated up 2%, and 2014 up 3%.
  • Except for Q1's, yr/yr Q2, Q3, and Q4 operating cash flows have been falling since 2009.
  • And consistent with the stall in revenues, A/R balances are shrinking, which is a big problem for management because A/R collections together with ever growing debt is how the company has been financing stock buybacks to prop up the stock.
  • If DNB were to use only its "operating cash flow" for dividends and buybacks. . . .well, it could not since its T12M "operating cash flow" was $348 million vs. nine months (not full year) buyback and dividend outflows of $293 million.
In short, other than downward, this company is going nowhere fast. No wonder DNB was looking to sell itself and even less wonder no one bit on it.

Surfing its website and looking at various samples of its offerings quickly brings home why DNB looks to be stuck in reverse. For all the catchy column titles on its reports, it offers very little that can't be found for free, or at nominal cost. Yes, DNB packages the information nicely and perhaps conveniently, but contrary to the company's assertions, relying on that information for a business decision is tantamount to bond managers pre-crash due-diligence efforts, i.e. "if the rating agencies say it's AAA it must be OK, buy $1 billion on margin." (I had to use the rating agency analogy because DNB owned Moody's until 2000.) Connect the dots and from an investor standpoint it's easy to conclude that DNB is trapped in a triple-hell of a business: one where it has to sell a commodity; one where the commodity drops in price every time a competitor figures out how to re-package it cheaper; and one where the truly valuable elements of information are becoming the domain of specialized companies, such as Gartner (NYSE:IT), Arbitron (NYSE:ARB), IHS Inc. (NYSE:IHS), FactSet Research (NYSE:FDS), etc.

Which brings me back to what got me to look at DNB in the first place. Based on DNB's SEC filings and its website, what supposedly sets DNB apart is that, "Quality data is the foundation of all our solutions…." I would offer that if badgering potential clients with voicemails worthy of the finest "boiler-room broker" is at the base of how it gathers "quality data" the company might want to revisit its internal processes. And in case you wonder, I don't seem to be the only one DNB has been bugging:
  • DNB is currently subject to a class action claim for violations of the Telephone Consumer Protection Act.
  • DNB now shuttered Chinese subsidiary (bought in mid-2009) has been criminally charged with illegally obtaining private information of Chinese citizens. Just yesterday, the company agreed to pay a nominal fine, but a few of its officers were sentenced to two years in prison.
  • And DNB is investigating allegations that it may have violated the Foreign Corrupt Practices Act.
As the saying goes, "quality in, quality out." Or something along those lines.

I am short a bit of DNB common, and I do not plan to make it more than an "entertainment position" because one of the company's stated raison-d'etre is to use its cash flow to buy back stock; that, and a corporate bond market that will lend "9 figures" to anyone with a DNB report, is likely to make shorting this stock frustrating. Nonetheless, the core of DNB's business appears in bad shape and if that stays the same the stock will eventually follow suit.
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Position in DNB.
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