Equifax Earnings: Weak Mortgage, Hiring Volumes Affecting Workforce Solutions

Wide-moat-rated Equifax EFX reported a slightly soft second quarter. Revenues of $1.32 billion came in slightly below the FactSet consensus estimate of $1.33 billion and missed our estimates as well. The firm’s U.S. credit bureau business performed well, with 6% revenue growth despite a 33% decline in mortgage credit inquiries. However, this strength was overshadowed by the firm’s larger Workforce Solutions business hitting speed bumps. Importantly, we do not see much negative read through for peer TransUnion, as we view the negative reaction to Equifax’s stock as being concentrated in Workforce Solutions. As we trim our estimates, we expect to reduce our fair value estimate on Equifax in a range of 5%-15%.

Workforce Solutions, which represented 57% of the firm’s adjusted EBITDA, declined 5% organically. Workforce Solutions mortgage revenue was down 20%, a decent result considering the 37% decline in mortgage originations. Talent solutions revenue was down 6%. The slowdown in hiring, particularly among white-collar professions, is certainly affecting volumes. The Bureau of Labor Statistics gross hires for professional and business services was down 14% in April and May versus the year-ago period. That said, Equifax has seen some pushback in recent quarters from background-screening companies such as First Advantage and HireRight. In addition, Experian has undoubtedly made progress in its income and employment and verification business. We still expect Equifax to be advantaged in this space and note that payroll record growth of 12% was strong, with a large number of exclusive records.