Symantec Corporation (SYMC) reported first quarter 2011 earnings per share of 35 cents, exceeding the Zacks Consensus Estimate of 32 cents. Revenue of $1.43 billion also exceeded the Zacks consensus of $1.25 billion.
Revenue
Symantec’s first quarter 2011 GAAP revenue was flat compared to $1.43 billion reported in the year-ago quarter. The sluggish performance is attributable to the cautious stance taken by the company’s IT customers.
Coming to business segments, Symantec’s Consumer segment contributed 33.0% of total revenue, up 6.0% from the year-ago quarter. The Security and Compliance segment contributed 24.0% of total revenue, up 1.0% from the year-ago quarter. The Storage and Server Management segment contributed 36.0% of total revenue, down 5.0% from the year-ago quarter. The Services segment contributed 7.0% of total revenue and remained flat on a year-over-year basis.
International revenue made up almost 50.0% of total revenue in the first quarter and increased 3.0% on a year-over-year basis. The EMEA (Europe, Middle East and Africa) region generated 28.0% of total revenue for the quarter and registered 6.0% year-over-year decline. The APJ region (Asia Pacific/Japan) generated 16.0% of total revenue, up 7.0% year over year. The Americas (which includes the United States, Latin America and Canada) generated 56.0% of total revenue and increased 2.0% year-over-year.
Operating Results
Gross margin on a GAAP basis was 81.5% in the first quarter, up from 78.2% reported in the year-ago quarter. Excluding special items such as stock compensation, amortization of acquired products and deferred revenue, the non-GAAP gross margin for the quarter remained almost flat at 84.9%, compared to 85.4% reported in the year-ago period. Gross margin increased as the total cost of revenue decreased substantially by 15.0%, especially attributable to the decline in amortization expenses, while revenue remained flat compared to the year-ago quarter.
Operating margin on a GAAP basis was 13.5% for the first quarter, compared to 10.6% for the same quarter last year. Excluding special items, non-GAAP operating margin for the first quarter of fiscal year 2011 was 26.5%, down from 27.9% reported in the year-ago quarter.
Net income on a GAAP basis for the first quarter was $161.0 million, compared to $74.0 million for the same quarter last year. This resulted in GAAP earnings per share of $0.20 compared to $0.09 for the same quarter last year.
Excluding special items like operating expense adjustment, non-cash interest expense, gain on sale of assets and amortization of intangibles, the non-GAAP net income for the first quarter was $284.0 million, compared to $277.0 million reported in the year-ago quarter, resulting in a non-GAAP earnings per share of $0.35, compared to earnings per share of $0.33 in the year-ago quarter.
Balance Sheet & Cash Flow
The company generated cash flow from operating activities of $335.0 million in the first quarter of fiscal year 2011, and ended the quarter with cash, cash equivalents and short-term investments of $2.74 billion. The company’s GAAP deferred revenue balance stood at $2.998 billion.
In the first quarter of fiscal 2011 the company repurchased 14 million shares, with an average price of $14.49 per share. The company has an additional authorization of $547.0 million remaining under the current share repurchase plan.
Guidance
For the second quarter of 2011, revenue is estimated at between $1.445 billion and $1.465 billion, down 1.0% to 2.0% compared to the year-ago quarter. GAAP diluted earnings per share are estimated to be between $0.09 and $0.10. The company expects non-GAAP diluted earnings per share of between $0.27 and $0.28.
Conclusion
Symantec delivered encouraging first quarter results and provided a decent second quarter 2011 outlook. The strong product portfolio, growth prospects in all its served markets, acquisitions, customer-win momentum and strong cash-generating ability are positives.
On the other hand, we are a bit concerned about the intense competition that the company faces from big and small players, as well as hardware and software manufacturers entering the IT security business. This apart, the security offered by the new Windows operating systems also pose some challenges.
We maintain a Neutral recommendation on Symantec, with a Zacks #3 Rank (short-term Hold rating).
SYMANTEC CORP (SYMC): Free Stock Analysis Report
Zacks Investment Research
