EMC Corp. (EMC) reported first quarter 2011 adjusted earnings per share (EPS) of 24 cents, up 20.0% from 20 cents posted in the first quarter of 2010.
However, earnings per share (including stock-based compensation but excluding restructuring charges and intangible asset amortization) missed the Zacks Consensus Estimate by a penny.
Operational Performance
Earnings (excluding stock based compensation, restructuring charges and intangible asset amortization) were 31 cents per share, up 19.2% year over year.
Net income (including stock-based compensation but excluding restructuring charges and intangible asset amortization) in the first quarter was $ 549.3 million, up 26.7% year over year. Net margin was 12.0% in the quarter, up 90 basis points (bps) from the year-ago quarter.
Gross profit (including stock-based compensation but excluding restructuring charges and intangible asset amortization) was $ 2.74 billion, up 21.5% year over year. Gross margin expanded 160 bps to 59.4%, primarily driven by strong revenue growth.
Operating profit (including stock-based compensation but excluding restructuring charges and intangible asset amortization) was $ 781.6 million, up 32.1% year over year. Operating margin increased 180 bps to 17.0%, reflecting stringent cost control.
Revenue
Revenue increased 18.4% year over year to $ 4.61 billion in the first quarter, surpassing the Zacks Consensus Estimate of $ 4.51 billion. This growth was primarily attributed to continued strong demand for EMC’s storage, data protection, virtualization and security products and services in the quarter.
Segment wise, product sales shot up 18.3% year over year to $ 2.93 billion. Services benefited from strong demand and increased 18.7% year over year to $ 1.68 billion in the first quarter.
The company’s high-end Symmetrix storage product portfolio climbed 25.0% year over year, primarily due to strong customer demand in the quarter. EMC’s mid-tier storage product portfolio experienced a revenue growth of 20.0% in the quarter.
The demand for EMC’s backup and recovery solutions also stepped up in the reported quarter. EMC’s new Isilon Storage Division exceeded revenue expectations in its first quarter.
Data Computing Division continued to expand driven by the strong performance of Greenplum in the Big Data warehousing and analytics sector.
RSA information security business climbed 8% year over year in the first quarter. VMware Inc., in which EMC owns the majority of shares, posted an impressive revenue growth of 33.0% year over year.
On a geographical basis, domestic revenues climbed 12.0% year over year to $ 2.4 billion and contributed 51.0% to the quarter’s revenues. International operations revenues escalated 26.0% year over year to $ 2.2 billion and accounted for 49.0% of revenues. Revenues increased 21.0% and 43.0% year over year, respectively, in the Europe, Middle East and Africa (EMEA) and Asia Pacific and Japan regions.
Balance Sheet
As of March 31, 2011, cash and cash equivalents including short-term investments were $ 5.59 billion compared with $ 5.37 billion at the end of December 31, 2010.
Cash flow from operations decreased to $ 1.13 billion in the first quarter from $ 1.32 billion at the end of the prior quarter. Free cash flow decreased to $ 857.3 million from $ 1.11 billion in the prior-year quarter.
2011 Guidance
EMC expects fiscal year 2011 revenues of $ 19.6 billion.
GAAP net income is expected to be $ 2.5 billion while non-GAAP net income is expected to be $ 3.3 billion. The estimated GAAP EPS is $ 1.09 for 2011 and non-GAAP EPS is $ 1.46.
Currently, the Zacks Consensus non-GAAP EPS estimate is pegged at $ 1.23 per share for fiscal 2011.
EMC expects to repurchase up to $ 1.5 billion of common stock in fiscal 2011.
GAAP operating income is projected between 16.5% and 17.5% of revenues, while non-GAAP operating income is likely to be in the range of 23.0% to 24.0% of revenues. Non-GAAP income tax rate is expected to be 22%, while non-operating expense, which includes investment income, interest expense, and other expenses, is likely to be $ 175 million in fiscal 2011.
Recommendation
We maintain our Neutral rating on EMC Corp. over the long term (6-12 months). We believe EMC will benefit from its dominant position in the storage market going forward. Moreover, increasing adoption of cloud computing technology will boost demand for EMC’s virtual infrastructure product, which is expected to drive top-line growth going forward.
However, EMC faces stiff competition in its key storage market from companies including International Business Machines Corp. (IBM), Hewlett Packard Co. (HPQ), NetApp Inc. (NTAP), and Dell Inc. (DELL). This may hurt its profitability going forward.
EMC has a Zacks #2 Rank, which implies a Buy rating in the near term (1-3 months).
DELL INC (DELL): Free Stock Analysis Report
EMC CORP -MASS (EMC): Free Stock Analysis Report
HEWLETT PACKARD (HPQ): Free Stock Analysis Report
INTL BUS MACH (IBM): Free Stock Analysis Report
NETAPP INC (NTAP): Free Stock Analysis Report
Zacks Investment Research
Be the first to comment