Following last week's earnings report, IHS's
IHS sells subscriptions for decision-support tools for energy and engineering firms. Its technology crunches enormous amounts of data to help improve the odds of success in oil exploration and other complex projects.
IHS continued its brisk business in the fiscal first quarter, with a 17% revenue increase to $152.6 million. The energy segment was the greatest growth driver, posting a 27% increase in revenue to $86.7 million. The company is simultaneously snagging more customers and increasing its prices -- a sign that clients really need IHS's offerings.
The engineering segment remains IHS's big disappointment. Its revenue increased only 7% to $65.9 million. On the conference call, management provide little insight regarding any strategy to inject growth into the division.
IHS's relatively fixed cost structure provides the company a distinct advantage. It's a common theme for great information-driven companies like McGraw-Hill
Over the past year, IHS has cut its cost of revenues from 46.9% to 43.1%, and boosted operating margin from 16.5% to 17%. Those lower costs and fatter margin helped the company increase net income by 36% to $18.4 million, or $0.32 per share, in the fiscal first quarter.
If anything, I'm concerned that management isn't being aggressive enough. With $184 million in the bank, I think it would make sense for IHS to make a big acquisition in the engineering space.
So far, investors aren't worried about the engineering segment's sluggishness, but it could become an issue over the next few years. In the meantime, the company expects to grow revenue 11% to 13% in fiscal 2007, with EBITDA growth of 18% to 22%. That sort of data should help keep investors confident about IHS's own odds of success.
We've tinkered with further Foolishness:
Fool contributor Tom Taulli, author of The Complete M&A Handbook, does not own shares mentioned in this article. He is ranked 1,590 out of 24,619 in Motley Fool CAPS. Moody's is aStock Advisor selection. The Fool has a disclosure policy.