Symantec Corporation (SYMC) reported adjusted earnings (excluding amortization, restructuring and other one-time items but including stock-based compensation) of 43 cents in the second quarter of fiscal 2015, comfortably beating the Zacks Consensus Estimate of 37 cents.
Revenues
Symantec reported revenues on a non-GAAP basis of $1.617 billion, which not only lagged the Zacks Consensus Estimate of $1.623 billion but were also down 1.2% year over year. Lower revenues from Content, Subscription and Maintenance segment (down 3.6%) more than offset the 24.6% increase in revenues from the License segment.
Now coming to the company’s realigned business segments — Consumer Security, Enterprise Security and Information Management.
Symantec’s Consumer Security segment revenues were down 6% year over year primarily due to the exit of certain OEM contracts which were not profitable as well as rearrangement of certain retail channels.
Revenues from Enterprise Security were also down 1% from the year-ago quarter due to the continued softness in Endpoint Management, which more than offset the increase from Endpoint Protection and DLP products.
Information Management revenues increased 3% year over year, primarily due to improvement in the Enterprise Backup business.
Operating Results
Symantec’s adjusted gross margin (excluding amortization, restructuring and other one-time items but including stock-based compensation) in the quarter were up 16 basis points (bps) on a year-over-year basis to 83.6%, while in dollar terms, gross profit of $1.352 billion were down 1%, primarily due to lower revenue base.
Adjusted operating margin (excluding amortization, restructuring and other one-time items but including stock-based compensation) expanded 68 bps to 25.9% from the year-ago quarter, primarily due to lower operating expenses as a percentage of revenues (down 52 bps year over year). Adjusted operating expenses decreased 2.1% to $934 million.
Symantec reported adjusted net income (excluding amortization, restructuring and other one-time items but including stock-based compensation) of $297.1 million or 43 cents compared with $336.8 million or 47 cents reported in the year-ago quarter.
Balance Sheet & Cash Flow
Symantec exited the quarter with cash, cash equivalents and short-term investments of $3.79 billion compared with $4.05 billion in the previous quarter. Long-term debt remained flat at $2.09 billion. Cash flow from operating activities was $173 million.
During the quarter, Symantec spent $125 million to repurchase 5.26 million shares at a price of $23.75. The company has nearly $408 million remaining under the current stock repurchase plan. The company also paid dividends worth $104 million.
Guidance
For the third quarter of fiscal 2015, the company expects revenues in the range of $1.65 to $1.69 billion (mid-point $1.67 billion), up sequentially. The Zacks Consensus Estimate is pegged at $1.704 billion.
Moreover, operating margins are expected in the range of 28.3% to 29.3%. Management expects non-GAAP earnings per share between 47 cents and 50 cents (mid-point 48.5 cents), up on a sequential basis. The Zacks Consensus Estimate stands at 46 cents.
Symantec raised the fiscal 2015 revenue guidance to a range of $6.715 to $6.795 billion from $6.63 to $6.77 billion. The Zacks Consensus Estimate is pegged at $6.714 billion.
For fiscal 2015, management expects an increase in operating margins owing to its operational efficiency. The company now expects operating margin within 28.3% to 28.6% (earlier forecast of 27.7% to 28.2%). Moreover, non-GAAP earnings per share are now expected in the range of $1.94 to $1.99 (earlier forecast $1.84 to $1.92). The Zacks Consensus Estimate is pegged at $1.69.
Owing to Symantec’s proposed split of its business into two parts, the company expects to incur separation cost of approximately $80 million and $100 million over the coming five quarters. The company also expects the restructuring initiatives undertaken will reduce its headcount by approximately 10%.
Our Take
Symantec has delivered tepid second-quarter results as year-over-year comparisons of both the top and bottom-line figures were unfavorable. However, the company’s fiscal 2015 outlook remains encouraging.
Continued investments to launch new and innovative products could also impact margins in the near term. Nonetheless, investing in growth areas such as Enterprise backup, Storage Management and Security businesses are expected to drive the company’s long-term prospects.
Moreover, Symantec’s restructuring initiatives and share buyback plans are expected to support the bottom line.
However, smaller companies like Kaspersky are consistently launching comparable products. These, along with competition from Intel (INTC) and Microsoft (MSFT), remain the headwinds. The uncertainty over PC sales further adds to the woes.
Currently, Symantec carries a Zacks Rank #4 (Sell). A better-ranked stock in the technology sector is Check Point Software (CHKP) with a Zacks Rank #2 (Buy).
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