Dell Inc. (DELL) delivered fourth quarter fiscal 2011 earnings per share (EPS) of 53 cents, handily beating the Zacks Consensus Estimate of 37 cents.
Revenues for the fourth quarter were $15.7 billion, up 5.0% from $14.9 billion reported in the year-ago quarter. Revenue growth was driven by an improvement in the Enterprise Solutions and Services businesses, as well as strong commercial client growth led by the Large Enterprise and the Small and Medium Business (SMB) segments.
Revenue by Segments
Large Enterprise posted revenue of $4.7 billion, up 12.0% year over year. Enterprise solutions and services revenue was $1.9 billion, reflecting a 5.0% year-over-year increase, with server revenue climbing 14.0%. The company continues to see a strong corporate refresh cycle, driven by consistent growth in Large Enterprise and the SMB businesses.
Public revenues in the quarter were $4.0 billion, up 4.0% from the year-ago quarter. The company continues to witness a mixed environment in this segment, with challenging customer dynamics in the European region.
Small and Medium Business revenues were $3.7 billion, up 12.0% from the year-ago quarter. In this segment, server and storage revenues grew 22.0% and 20.0% year over year, respectively. Revenue for desktop computers and mobile devices increased 10.0%. During the fourth quarter, the company improved its product portfolio, and added the Vostro V130 ultraportable laptop for mobile entrepreneurs.
Consumer Business revenues decreased 8.0% to $3.3 billion. Operating income was $69.0 million, or 2.1% of revenue. The annual revenue decline resulted from the launch of Microsoft Corp.’s (MSFT) Windows 7 operating system last year, but improved sequentially on strong holiday demand.
Total sales from the BRIC countries (Brazil, Russia, India and China), which accounted for 13.0% of Dell’s overall revenue increased strongly by approximately 21.0%.
Operating Results
Gross margin for the quarter was 21.0%, up from 16.6% reported in the fourth quarter of fiscal 2010 and 19.5% reported in the previous quarter. The gross margin expansion may be attributed to good supply chain management, decline in component cost, pricing discipline and sales execution, which positively impacted all business segments of the company.
In addition, operating expenses, as a percentage of revenue was 13.7% compared to 13.2% in the year-ago quarter. This resulted in an operating margin of 7.3%, up from 3.4% reported in the year-ago quarter. Operating income increased as a result of better execution, competitive pricing and cost control initiatives in a favorable component environment.
The quarter’s GAAP earnings were 48 cents per share, up from 17 cents reported in the year-ago quarter and from 42 cents reported in the previous quarter. Excluding special items like amortization of intangibles, severance and facility action consolidation cost, acquisition related cost, and adjustments based on income taxes, the EPS for the quarter was 53 cents, up from 28 cents in the year-ago quarter and from 45 cents in the previous quarter.
Balance Sheet & Cash Flow
Dell’s cash conversion cycle changed from negative 32 days in the previous quarter to a negative 33 days. Cash flow from operations increased to $1.5 billion from $913.0 million reported in the year-ago quarter. The company ended the quarter with $15.1 billion in cash and short-term investments versus $13.4 billion in the previous quarter. Long-term debt stood at $5.14 billion at the end of the quarter versus $3.16 billion in the previous quarter.
Guidance
Dell expects fiscal 2012 revenue growth in the range of 5.0% to 9.0%, non-GAAP operating income growth in the range of 6.0% to 12.0%, and the company expects the cash cash flow from operations to exceed net income.
In the first quarter of fiscal 2012, Dell expects normal seasonal declines in its consumer and public businesses, which may result in a slight sequential decline in revenue.
In a nutshell, Dell reported decent fourth quarter numbers, with EPS and revenues moving up from the year-ago quarter. New products, a stronger services business, opportunities in the Electronic Medical Record sector, along with the introduction of the new Dell Streak were the achievements of the year.
However, the high level of debt and increasing competition from Hewlett-Packard Company (HPQ) and Acer concern us.
Consequently, the company has a short-term Zacks #3 Rank (Hold recommendation).
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