Symantec Corporation (SYMC - Analyst Report) reported earnings per share of 39 cents in the firstquarter of 2014, comfortably beating of the Zacks Consensus Estimate of 31 cents.
Symantec reported revenues of $1.71 billion in the quarter, up 2.5% year over year from $1.67 billion. The revenue growth was on the back of the strength in the subscription and maintenance revenues as well as the go-to-market strategy. Total revenue was benefited by the Backup, Information Security and Endpoint Security businesses.
Revenues from the User Productivity & Protection segment moved down by 0.7% year over year and represented 30.3% of the total revenue. Information Security segment revenues decreased by 7.0% on a year-over-year basis. Information Management revenues decreased by 0.5% year-over-year.
The International market revenues of the company increased 2.3% from the year-ago quarter. Moreover, the Americas, which include the United States, Latin America and Canada, witnessed a year-over-year growth of 2.6%. The U.S. witnessed revenue growth of 2.6% from the year-ago quarter. The Europe, Middle East and Africa region’s revenues grew 7.8% on a year-over-year basis. However, the Asia-Pacific/Japan revenues registered a decline of 5.3% on a year-over-year basis.
Gross margin in the quarter was 82.4%, down 60 basis points (bps) from 83.0% in the year-ago period.
Operating margin was 13.1%, down 188 bps from 15.0% in the year-ago quarter. Operating margin declined as a result of higher operating expense, arising from an increase in R&D expenses and Restructuring and transition expense.
Net income Symantec’s shareholders in the reported quarter; include $157.0 million or 22 cents per share compared with $160.0 million or 22 cents per share in the year-ago period.
Excluding special items like operating expense adjustment, non-cash interest expense and related tax adjustments but including stock-based compensation expenses, adjusted net income in the quarter was 39 cents per share compared with 36 cents per share in the year-ago period.
Balance Sheet & Cash Flow
Symantec registered cash, cash equivalents and short-term investments of $3.78 billion, down from $4.75 billion in the previous quarter. Long-term debt for the company remained flat at $2.09 billion. Cash flow from operating activities was $312.0 million down from $1.59 billion, primarily driven by spending on operational improvements in different areas which include support and ongoing ERP implementation.
During the quarter, Symantec spent $125 million to repurchase 5.2 million shares at a price of $23.96. The company has nearly $1.0 billion remaining under the current stock repurchase plan.
For the second quarter of 2014, the company expects GAAP revenues in the range of $1.65 billion to $1.69 billion compared to $1.7 billion in the year-ago period. Moreover, GAAP operating margin is expected in the range of 13.6% to 14.2% compared to 17.5% in the year-ago period. Non-GAAP operating margin is expected in the range of 25.8% to 26.4% compared to 27% last year.
The company also expects GAAP earnings per share in the range of $0.22 and $0.24 as compared to $0.27 in the year-ago period. Non-GAAP earnings per share are estimated between $0.42 and $0.44 as compared to $0.45 in the year-ago period.
Symantec has delivered modest first-quarter 2014 results, with earnings per share surpassing the Zacks Consensus Estimates and revenues increasing from the previous quarter. The operating performance of the company was not so encouraging, as margins tumbled. Symantec expects sequentially weak earnings in the next quarter as it plans to investment in some operating areas.
Moreover, the uncertainty over PC sales is going to affect its User Productivity & Production throughout the year. Moreover, as smaller companies like Kaspersky are consistently bringing comparable products to the market, competition continues to intensify. Reduction in tech spending, stiff competition from McAfee – acquired by Intel Corp. (INTC - Analyst Report) –as well as the prevailing economic turmoil in Europe may have some dampening effect on Symantec’s business prospects.
Currently, Symantec carries a Zacks Rank #3 (Hold).
Other Stocks to Consider
Other stocks in the technology industry that are currently performing well are Aspen Tech Inc. (AZPN - Snapshot Report) and SanDisk Corp. (SNDK - Analyst Report). Both hold a Zacks Rank #1 (Strong Buy).