Symantec Corporation (SYMC) reported third quarter of fiscal 2011 earnings per share of 17 cents, falling well below the Zacks Consensus Estimate of 30 cents.However, the quarter’s revenue of $1.60 billion surpassed the Zacks Consensus Estimate of $1.58 billion.
Revenue
Symantec reported third quarter fiscal 2011 GAAP revenue of $1.604 billion, up 4% from $1.548 billion reported in the year-ago quarter. The increase in revenue may be attributed to the stability in the Storage Management business and strength in our Consumer, Backup and Data Loss Prevention businesses.
Coming to business segments, the Consumer segment contributed 31.0% to total revenue, up 4.0% from the year-ago quarter. Security and Compliance contributed 26.0% to total revenue, up 13.0% from the year-ago quarter. Storage and Server Management accounted for 37.0% of total revenue, up 1.0% from the year-ago quarter. Services contributed 6.0% and declined 17% on a year-over-year basis.
International revenue comprised almost 52.0% of the total revenue in the third quarter and increased 6.0% on a year-over-year basis. The EMEA (Europe, Middle East and Africa) region generated 29.0% of total revenue in the quarter and fell 3.0% year over year.
The APJ region (Asia Pacific/Japan) generated 17.0% of total revenue, up 14.0% year over year. The Americas (which includes the United States, Latin America and Canada) generated 54.0% of revenue and increased 5.0% year over year.
Operating Results
Gross margin for the quarter was 85.3%, moving down 110 basis points from the year-ago period of 86.4%, driven by the acquired VeriSign security business. Non-GAAP operating margin was 23.6%, down 460 basis points from the December 2009 quarter, primarily driven by our recent acquisitions and higher commission expenses.
Net income on a GAAP basis in the third quarter was $132.0 million compared to $301.0 million for the same quarter last year. This resulted in GAAP earnings per share of 17 cents compared to 37 cents in third quarter fiscal 2010.
Excluding special items like operating expense adjustment, non-cash interest expense, loss on extinguishment of debt, the non-GAAP net income was $132.0 million, compared to $301.0 million reported in the year-ago quarter, resulting in a non-GAAP earnings per share of 17 cents, compared to earnings per share of 37 cents in the year-ago quarter.
Balance Sheet & Cash Flow
The company generated cash flow from operating activities of $460 million, up 17% year-over-year as reported. For the December quarter, the company generated $460 million in cash flow from operating activities, up 17% year over year. Cash flow benefited from acquisitions, higher billings and lower tax payments.
The company ended the quarter with cash, cash equivalents and short-term investments of $2.45 billion, up from $2.26 billion in the previous quarter. This apart, the company’s GAAP deferred revenue balance stood at $2.98 billion.
Guidance
For the fourth quarter of fiscal 2011, revenue is estimated between $1.585 billion and $1.605 billion, up 4% to 5% year over year. GAAP diluted earnings per share are estimated at between 15 and 16 cents. Non-GAAP diluted earnings per share are estimated at between 35 and 36 cents.
Conclusion
Symantec delivered modest third quarter results and provided a decent fourth quarter fiscal 2011 outlook. The company’s strong product portfolio, growth prospects in all its served markets, acquisitions, customer win momentum and strong cash generation 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. Moreover, the security offered by the new Windows operating systems also poses some challenges.
Symantec has a Zacks #3 Rank, which translates into a short-term Hold recommendation.
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