Symantec Corporation (SYMC) reported earnings per share of 37 cents in the first quarter of 2012, handily beating the Zacks Consensus Estimate of 33 cents.
Revenue
Symantec reported first quarter 2012 GAAP revenue of $1.65 billion, up 15.0% from $1.43 billion reported in the year-ago quarter. However, reported revenue improved 9.0% on a constant currency basis. The increase in revenue was primarily attributed to higher revenue across all segments.
In the reported quarter, Symantec's Consumer segment represented 32.0% of the total revenue and increased 11.0% year over year.TheSecurity and Compliance segment represented 28.0% of the total revenue and surged 31.0% year over year.The Storage and Server Management segment (36.0% of the total revenue) climbed 14.0% year over year.Services represented around 4.0% of the total revenue and declined 20.0% year over year, as the company shifted to a partner-led consulting model.
Growth rates in the Security and Compliance and Services segments mitigated the impact of the movement of Managed Security Services from the Services segment to the Security and Compliance segment.
International revenues represented 52.0% of the total revenue in the first quarter of fiscal year 2012 and increased 21.0% year over year. Europe, Middle East and Africa region represented 29.0% of revenues and increased 16.0% year over year. Asia Pacific/Japan represented 18.0% of total revenue and shot up 29.0% year over year. The Americas, including the United States, Latin America and Canada, represented 53% of the total revenue and jumped 11%t year over year on an actual as well as currency-adjusted basis.
Operating Results
Gross margin in the quarter was 84.3%, down 280 basis points (bps) from 81.5% in the year-ago period. Non-GAAP operating margin in the reported quarter was 27.0% compared with 26.5% in the year-ago quarter.
GAAP operating margin in the first quarter of fiscal year 2012 was 17.1% compared with 13.5% in the prior-year quarter. Operating margin improved as operating income increased at a lower rate than revenue.
GAAP net income in the reported quarter was $172.0 million compared with $161.0 million in the year-ago period. GAAP diluted earnings per share increased 10% year over year to 22 cents from 20 cents reported in the year-ago quarter.
Excluding special items like operating expense adjustment, non-cash interest expense and related tax adjustments, non-GAAP net income in the first quarter was $279.6 million or 37 cents compared with $260.2 million or 32 cents for the year-ago period.
Balance Sheet & Cash Flow
The company registered cash, cash equivalents and short-term investments of $2.29 billion in the recently concluded quarter, compared with $2.96 billion during the reported quarter. During the first quarter of 2012, Symantec paid $364 million for the Clearwell acquisition. The company repurchased 10.0 million shares for $198.0 million, at an average price of $18.98. This cash expenditure resulted in approximately 33.0% of the company’s cash balance.
Guidance
For the second quarter of fiscal 2012, revenue is estimated between $1.655 billion and $1.675 billion, up 12.0% to 13.0%. GAAP diluted earnings per share are expected between 21 cents and 22 cents. Non-GAAP diluted earnings per share are projected in the range of 38 cents to 39 cents. Deferred revenue is expected in the range of $3.485 billion and $3.515 billion, up 12.0% to 13.0% and in line with seasonal patterns.
Our Take
Given its significant share in the fast-growing security market and the acquisition of VeriSign’s identity/authentication business, we believe Symantec will be able to capitalize on the vast opportunities in the security market. Customers and channel partners are providing positive feedbacks on the company and strategic ties with VMware Inc. (VMW) and Salesforce.com Inc. (CRM) are expected to be accretive.
However, intense competition from big and small players as well as the threat from Microsoft Corp.’s (MSFT) new Windows operating systems may hamper margin expansion, but we believe Symantec’s technology will enable it to deliver decent results in the coming quarters.
Currently, Symantec has a Zacks #3 Rank, implying a short-term Hold rating.
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