Symantec Corporation (SYMC) reported earnings per share of 38 cents in the third quarter of 2012, a penny ahead of the Zacks Consensus Estimate. The company’s shares grew 1.05% in the after-hour trade, subsequent to the earnings release. The quarterly beat was driven by higher demand for its security solutions. Increase in worldwide data sharing is forcing enterprises to deploy security measures to prevent data mishandling. Symantec also witnessed strong demand for its data loss prevention, authentication, managed security services and backup offerings.
Revenue
Symantec reported third quarter 2012 revenue of $1.72 billion, up 6.9% year over year from $1.60 billion. The reported result was also above the Zacks Consensus Estimate of $1.71 billion. However, reported revenue improved 6.0% on a constant currency basis. Contributions from the company’s Clearwell acquisition (completed during the second quarter) were significant.
The results for the quarter were mainly driven by a strong growth in the Security and Compliance segment (17.0% year over year growth), followed by the Consumer segment (5.0%) and the Storage and Server Management segment (3.0%). However, overall growth rate was somewhat tempered by a 13.0% decline in Symantec’s Services segment.
Symantec's Content, Subscription and Maintenance revenue of $1.46 billion increased 8.4% from $1.27 billion reported in the year-ago quarter. License revenue inched up 0.8% year over year to $253.0 million.
International revenues were 52.0% of the total revenue and grew 6.0% year over year. Europe, Middle East and Africa region represented 27.0% of revenues and dipped 1.0% year over year. Asia Pacific/Japan contributed 18.0% of the total revenue and was up 16.0% year over year. The Americas, including the United States, Latin America and Canada, represented 55.0% of the total revenue and grew 8.0% year over year.
Operating Results
Gross margin in the quarter was 84.2%, up 70 basis points (bps) from 83.5% in the year-ago period.
Operating margin was 17.0% improved 320 bps from the year-ago quarter to 17.5% on efficient cost control.
Net income in the reported quarter was $240.0 million or 32 cents per share compared with $132.0 million or 17 cents per share in the year-ago period.
Excluding special items like operating expense adjustment, non-cash interest expense and related tax adjustments, but including stock-based compensation expenses, adjusted net income in the quarter was $280.9 million or 38 cents compared with $245.3 million or 32 cents in the year-ago period.
Balance Sheet
Symantec registered cash, cash equivalents and short-term investments of $2.38 billion, compared with $2.25 billion in the prior quarter. Long-term debt for the company stood at $2.03 billion, up from $2.01 billion reported in the previous quarter. Cash flow from operating activities was $403.0 million compared with $460.0 million in the year-ago period.
During the quarter, Symantec repurchased approximately 13.0 million shares for $220.0 million, at an average price of $16.69. The board of directors has approved another $1 billion share repurchase program. Currently, the company has $1.2 billion remaining under its existing authorization.
Guidance
For the fourth quarter of fiscal 2012, total revenue is estimated in the range of $1.72 billion to $1.73 billion, up 2.8% to 3.4% from the year-ago level. GAAP diluted earnings per share is estimated between 23 cents and 24 cents, up 5.0% to 9.0 % year over year. Excluding one-time items (stock-based compensation, amortization of acquired product, rights and other intangible, assets and non-cash interest expense, net of tax), non-GAAP diluted earnings per share is estimated between 41 and 42 cents, up 8.0% to 10.0% year over year.
Deferred revenue is expected in the range of $3.92 billion to $3.94 billion, up 2.5% to 3.0% year over year.
Both the revenue and earnings expectations came in below the Street’s expectation.
Our Take
In our view, Symantec has delivered a modest quarter with both the top and bottom line surpassing the Zacks Consensus Estimates. Geographical and segmental performances were good, barring the EMEA and Service segment. The company had considerable cash in the quarter with continuous share buyback, enough to turn on the mood of the investors.
Good news on Symantec’s part was that research firm Gartner expects the worldwide spending on security software to rise 10% this year to $20.7 billion.
Despite the positives, we are unable to render a positive view on the shares. Uncertainty over PC sales is going to hit its Consumer segment throughout the year. Moreover, reduction in tech spending by different government and private organization, stiff competition from McAfee (acquired by Intel Corp. (INTC)) as well as the prevailing economic turmoil in Europe will likely dampen the company’s business prospect. Symantec’s guidance was weak, and we believe that this could be due to the above mentioned reasons.
Currently, Symantec has a Zacks #4 Rank, implying a short-term Sell rating.
INTEL CORP (INTC): Free Stock Analysis Report
SYMANTEC CORP (SYMC): Free Stock Analysis Report
To read this article on Zacks.com click here.
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment