CA Inc. (CA) reported second-quarter fiscal 2015 adjusted earnings (excluding amortization, other gains and software development costs capitalized but including stock-based compensation) of 62 cents per share, which beat the Zacks Consensus Estimate of 59 cents.
Quarter Details
CA’s revenues of $1.079 billion decreased 2.4% from the year-ago quarter and lagged the Zacks Consensus Estimate of $1.080 billion. The year-over-year decline was primarily due to 1.5%, 6.2% and 6.7% decline in Subscription and maintenance revenues (84.2% of total revenue), Professional Services revenues (8.4%) and Software fees and other revenues (7.4%), respectively.
Moreover, on a segment basis, revenues from CA’s Mainframe Solutions were down 2.2% on a year-over-year basis to $610 million. Revenues from Enterprise Solutions and Services decreased 1.6% and 6.2% year over year to $378 million and $91 million, respectively. Enterprise Solutions sales decreased primarily due to lower upfront payments. On the other hand, Services revenues were hit primarily by lower number of service deals.
North America and International revenues were down 3.1% and 1%, respectively, from the year-ago period. The company also witnessed an 11.3% decrease in bookings.
Moving on, CA reported adjusted income from continuing operations before interest and income taxes (including stock-based compensation but excluding other one-time items) of $407 million, down 4.9% year over year. As a percentage of revenues, adjusted income from continuing operations before interest and income taxes were down 101 basis points primarily due to an increase in operating expenses, as a percentage of revenues, of the same magnitude on a year-over-year basis.
CA’s adjusted net income from continuing operations came in at $274.7 million compared with $361.5 million per share reported in the year-ago quarter.
CA exited the quarter with cash and cash equivalents of $3.193 billion compared with $3.255 billion in the previous quarter. The company’s total long-term debt (including current portion) came in at $1.76 billion. CA generated $66 million in cash from operating activities.
Moreover, during the reported quarter, CA did not repurchase any stock but paid $111 million as dividends.
Fiscal 2015 Guidance
CA updated its fiscal 2015 outlook. For fiscal 2015, the company expects total revenue to decline in the range of 2% to 1% ($4.27 to $4.33 billion). The Zacks Consensus Estimate for fiscal 2015 is pegged at $4.37 billion. CA expects non-GAAP earnings per share from continuing operations to decrease in the range of 20–18% ($2.40 to $2.47), better than the previous guided decline of 21% to 19%. The Zacks Consensus Estimate for fiscal 2015 is pegged at $2.33 per share.
The company expects cash flow from operations to increase in the range of 5–12%.
Our Take
CA reported mixed second-quarter results wherein the bottom line beat the Zacks Consensus Estimate but the top line missed the same. The year-over-year comparisons were not favorable either. CA’s major revenue generating segments were adversely affected during the reported quarter primarily due to lower-than-expected sales of new products. The company also provided a modest earnings outlook for fiscal 2015.
Nonetheless, we believe that the breadth of its products and the increased efficiency offered by them will attract customers across sectors, lending stability to the business model. We are positive about CA’s increased cloud exposure. A decent renewal rate, modest cash position and share repurchase also appear encouraging.
On the other hand, increasing competition from Oracle (ORCL), International Business Machines (IBM) and Hewlett-Packard (HPQ) and exposure to Europe remain the near-term headwinds.
CA currently has a Zacks Rank #3 (Hold).
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