Symantec Beats Estimates, Shares Up - Analyst Blog

By Zacks | October 25, 2012 AAA

Symantec Corporation (SYMC) reported earnings per share (EPS) of 41 cents in the second quarter of 2013, comfortably beating of the Zacks Consensus Estimate of 33 cents. Shares hiked 9.9% in the after-hours.

Revenue

Symantec reported revenues of $1.70 billion in the quarter, up 1.1% year over year from $1.68 billion and was above the Zacks Consensus Estimate of $1.66 billion. The revenue growth was complemented by strength in Security and Compliance revenue and marginal growth in Services revenue. However, this was partially offset by weak performances in Consumer and Storage and Server Management revenues.

Revenue from Consumer segment dropped 1.0% year over year and represented 31.0% of the total revenue. Security and Compliance segment (around 30.0% of the total revenue) increased 6.0% on a year-over-year basis. Storage and Server Management segment represented around 35.0% of the total revenue and reported a year-over-year decrease of 2.0%. Lastly, the Services segment represented 4.0% of the total revenue and grew approximately 2.0% on a year-over-year basis.

The company generated around 51.0% of the total revenue from the International market and was up 1.0% from the year-ago quarter. Moreover, the Europe, Middle East and Africa region (26.0% of revenues) declined 4.0% on a year-over-year basis. Asia Pacific/Japan revenue (contributing around 20.0% of the total revenue) registered a growth of 6.0% on a year-over-year basis. The Americas, which include United States, Latin America and Canada, represented around 54.0% of the total revenue, and witnessed a year-over-year growth of 2.0%.

After adjusting for currency conversion, each revenue segment and geographical regions witnessed year-over-year growth.

Operating Results

Gross margin in the quarter was 83.3%, down 90 basis points (bps) from 84.2% in the year-ago period. The decline in gross margin was due to higher costs associated with the company's businesses.

Operating margin was 18.0%, up 100 bps from 17.0% in the year-ago quarter. Operating margin grew as a result of lower operating expense, arising from a decrease in selling and marketing expenses and flat research & development expenses.

Net income in the reported quarter was $193.0 or 27 cents per share compared with $182.0 million or 24 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 41 cents per share compared with 36 cents per share in the year-ago period.

Balance Sheet & Cash Flow

Symantec registered cash, cash equivalents and short-term investments of $4.0 billion, flat sequentially. Long-term debt for the company remained unchanged at $2.09 billion. Cash flow from operating activities was $178.0 million versus $340.0 million in the year-ago period.

During the quarter, the company repurchased 12 million shares for an average price of $16.48, totaling $197.8 million.

Guidance

For the third quarter 2013, the company expects GAAP revenue to be in the range of $1.72 billion and $1.75 billion, reflecting year-over-year growth of 0%-2.0%. GAAP EPS is expected in the range of 17-19 cents, while non-GAAP EPS is expected between 36 and 38 cents. The Zacks Consensus Estimates for the third quarter and fiscal 2012 are pegged at 33 cents and $1.46, respectively.

Conclusion

Symantec has delivered decent second quarter 2013 results with EPS and revenue surpassing the Zacks Consensus Estimates. The company also witnessed a mixed geographical revenue performance. Symantec expects a sequentially weak EPS, which seems justified given the plans for additional investments in some operating areas.

Uncertainty over PC sales is going to affect its Consumer segment throughout the year. Moreover, as smaller companies like Kaspersky are coming up with better products at regular intervals, it is intensifying the competition in this segment.

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 prospects. Symantec provided a mediocre guidance and we believe that this could be due to the above mentioned reasons.

Symantec has a Zacks #3 Rank, implying a short term Hold rating.

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