Autodesk Raised Guidance - Analyst Blog

Autodesk Inc. (ADSK), on June 24 (investor day), raised the low end of its second quarter 2011 earnings and revenues guidance, due primarily to strong global demand. Autodesk also provided its long-term business outlook.

Autodesk expects non-GAAP earnings per share (excluding stock based compensation expense and one-time charges) between 25 cents and 28 cents, compared with the previous guidance of 23 cents to 28 cents.

GAAP earnings per share are estimated in the range of 14 cents to 17 cents, including 6 cents related to stock based compensation expense, 4 cents for amortization of acquisition related intangibles and 1 cent of restructuring charges. The previous GAAP earnings per share guidance came in the range of 12 cents to 17 cents.

The current Zacks Consensus Estimate calls for 20 cents in earnings per share, excluding one-time charges but including stock based compensation. This is a 33% increase from the reported earnings of 15 cents in the year-ago period. This is one cent above the company’s low end guidance range of 19 cents (including stock based compensation expense). Autodesk anticipates tax rate of 26.0% on a GAAP basis and 27.0% on a non-GAAP basis.

Second quarter 2011 total revenue is expected between $445.0 and $460.0 million, compared with the previous guidance of $435.0 to $460.0 million. The Zacks Consensus Estimate is at $457.0 million.

Long Term Outlook

For the next five years, Autodesk set a target of 12% to 14% compound annual revenue growth (CAGR) and expects to achieve non-GAAP operating margin of at least 30%, thereby augmenting shareholder value. Management is also looking forward to maximize cash flow by optimizing capital allocation.

Autodesk remains positive on a long-term basis primarily because of expanding market share, new consumer growth, superior technology and a diversified product pipeline.

We believe Autodesk’s robust product portfolio caters to large enterprises, small and medium businesses, professionals and individual customers. Autodesk plans to broaden its customer base by new competitive wins, growth in new accounts and subscription, portfolio expansion and increasing penetration in emerging markets such as Brazil, China and India.

3D is becoming an integral part of film production, video game development and television, ensuring considerable growth for the company.

Autodesk’s expertise in 3D technology has made it a compulsory choice for the game makers. The company expects to achieve strong growth through its premium offerings and expansion of its middleware and Autodesk FBX software. The company further expects to expand in the 3D interactive media market over the long term.

The company expects strong growth from the Architecture, Engineering and Construction (AEC) segment due to new products and delivery methods, increasing penetration into emerging markets and cost efficient production capability.

Autodesk has a diversified revenue growth base with Americas contributing 38.0%, EMEA 39.0% and Asia Pacific 23.0%.

The company continues to grow its maintenance revenues and installed base. Autodesk expects low channel inventory and increasing efficiencies through channel partner framework, simplified upgrade pricing mechanism and electronic software delivery to drive top line growth going forward.

Despite its continued investment in R&D, sales and marketing throughout the recession, Autodesk was able to save $312.0 million on a non-GAAP basis in fiscal 2010 versus 2009. Management believes strict cost control will be the primary operating margin growth driver in the long run.

We expect increasing cash generation and an improving cash conversion cycle, in addition to investments in organic growth, buyback of shares and accretive merger and acquisitions to enhance shareholder value going forward.

First Quarter Highlights

Autodesk reported strong first quarter 2011 results, with earnings per share and revenues up 58.8% and 11.5%, respectively. The year-over-year advance was primarily driven by strong revenue growth from international markets and higher maintenance billings and commercial new licenses.

Operating margin spiked up 140 basis points in the first quarter, primarily driven by cost control and a higher revenue growth.

Maintain Neutral

We maintain a Neutral recommendation on Autodesk, given the softness in the European economy, which could have a negative impact in the near term as around 40% of the company’s revenue come from this region. Autodesk may also face some foreign exchange headwinds. However, in the long term we remain positive on the company.

Although Autodesk has a strong market position in the “mainstream” CAD market, it faces stiff competition from Dassault Systems. Moreover, the company competes against Adobe Systems Inc. (ADBE), Apple Inc. (AAPL), Avid Technology(AVID), Sony Corporation (SNE) and Thomson Reuters Corporation (TRI).