Yesterday, after market close, Amdocs Limited (DOX) declared financial results for the fourth quarter of fiscal 2010 that beat our expectations. However, Amdocs announced that its first quarter of fiscal 2011 profitability will suffer due to higher expenses for productivity improvement, emerging market sales opportunity, and suspension of program implementation at Clearwire Corp. (CLWR). As a result, in the after market trade on NYSE, stock price of Amdocs was down $1.5 (5%) to $28.50.

Quarterly net income, on a GAAP basis was $94.7 million or 48 cents per share compared to a net income of $85.8 million or 42 cents per share in the prior-year quarter. However, fourth quarter of fiscal 2010 adjusted (excluding special items) EPS of 56 cents easily beat the Zacks Consensus Estimate of 54 cents.

Quarterly total revenue of $762.2 million was up 7.7% year over year and was slightly below the Zacks Consensus Estimate of $763 million. Revenue was positively impacted by $3 million sequentially due to favorable movement of the foreign currency exchange rate.

Cost of sales in the fourth quarter of fiscal 2010 was $486.3 million, up 7.9% year-over-year. Gross margin in the same quarter was 36.2% compared to 36.3% in the year-ago quarter. Quarterly operating income was $102.9, up 6.2% year over year.

At the end of fiscal 2010, total order backlog was $2,525 million compared to $2,470 million at the end of the pervious quarter. In last April, the board of directors authorized a $700 million share buyback plan of DOX stock. In the reported quarter, the company repurchased $181 million worth of shares.

During fiscal 2010, Amdocs generated $685.2 million of cash from operations compared to $519.2 million in fiscal 2009. Free cash flow (cash flow from operations less capital expenditure) in fiscal 2010 was $598.3 million compared to $436.8 million in fiscal 2009.

At the end of fiscal 2010, Amdocs had approximately $1,433.3 million of cash and marketable securities and $200 million of outstanding debt on its balance sheet compared to $1,173 million of cash and marketable securities and no outstanding debt at the end of fiscal 2009.

Segment Wise Results

Service revenue was $736.9 million, up 8.3% year over year. License revenue was $25.3 million, down 7.3% year over year. Technologically, Customer Experience revenue was $714.9 million, up 6.9% year over year. Systems Directory revenue was $47.3 million, up 21.9% year over year. Geographically, North America generated $569.7 million, up 7.9% year over year; Europe generated $91 million, down 2.2% year over year; and the Rest of World generated the remaining $101.5 million, up 17.5% year over year.

Future Financial Outlook

Management is expecting first quarter of fiscal 2011 revenue to be within the range of $760 million – $780 million. Its mid-point of $770 million is slightly below the current Zacks Consensus Estimate of $774 million. EPS, on a GAAP basis, is expected to be within the range of 34 cents – 45 cents. Non-GAAP EPS, excluding 6 cents – 8 cents per share of equity based compensation expense will be within the range of 41 cents – 52 cents. Its mid-point of 465 cents is far below the current Zacks Consensus Estimate of 550 cents.

Recommendation

We maintain our long-term Neutral recommendation for Amdocs. Currently it is a short-term Zacks #3 Rank (Hold) stock.

 
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