Back to top

Analyst Blog

Symantec Corporation (SYMC - Analyst Report) reported adjusted earnings (excluding amortization, restructuring and other one-time items but including stock-based compensation) of 48 cents in the third quarter of 2014, comfortably beating the Zacks Consensus Estimate of 39 cents. On a year-over-year basis, adjusted earnings increased 15.7% from the year-ago quarter.

Revenues

Symantec’s revenues of $1.71 billion surpassed the Zacks Consensus Estimate of $1.66 billion but were down 4.8% year over year. The year-over-year decline was primarily due to lower revenues from Content, Subscription and Maintenance segment which was down 0.9% on a year-over-year basis at $1.51 billion, and a 27% drop in revenues from License which came in at $197 million.

Revenues from the User Productivity & Protection segment moved down 4.0% year over year, primarily due to continued softness in the Endpoint Management segment. Information Security segment revenues decreased 1.0% on a year-over-year basis, primarily due to  weak mail, web and data center security businesses which more than offset the improvement in authentication and MSS businesses.

Information Management revenues decreased 7% year over year primarily due to Backup Exec and information availability business which offset the increase in NetBackup appliances.

The International market revenues decreased 4% from the year-ago quarter. Moreover, the Americas, which include the United States, Latin America and Canada, witnessed a year-over-year revenue decline of 4%. The Europe, Middle East and Africa region’s revenues also inched down 1% on a year-over-year basis. The Asia-Pacific/Japan revenues registered a decline of 12% year over year.

Operating Results

Symantec’s adjusted gross margin (excluding amortization, restructuring and other one-time items but including stock-based compensation) in the quarter was down 4 basis points (bps) on a year-over-year basis to 84.2% primarily due to a lower revenue base and higher mix of appliance and hosted solutions business.

Adjusted operating margins expanded 466 bps to 27.3% from the year-ago quarter primarily due to lower operating expenses as a percentage of revenues. Operating expenses as a percentage of revenues declined 457 bps. Operating expenses declined primarily due to benefits from Symantec’s restructuring initiatives and lower-than-expected spending on sales and marketing, and tepid hiring pace.

Symantec reported adjusted net income (excluding amortization, restructuring and other one-time items but including stock-based compensation) of $339.4 million or 48 cents compared to $293.3 million or 42 cents reported in the year-ago quarter.

Balance Sheet & Cash Flow

Symantec exited the quarter with cash, cash equivalents and short-term investments of $3.88 billion compared with from $3.83 billion in the previous quarter. Long-term debt for the company remained flat at $2.09 billion. Cash flow from operating activities was $329.0 million.

During the quarter, Symantec spent $125 million to repurchase 5.3 million shares at a price of $2.76. The company has nearly $783 million remaining under the current stock repurchase plan. The company also paid dividends worth $104 million (15 cents per share).

Guidance

For the fourth quarter of 2014, the company expects revenues in the range of $1.615 billion to $1.655 billion, down from $1.748 billion reported in the year-ago period. The Zacks Consensus Estimate is pegged at $1.65 billion.

Moreover, non-GAAP operating margins are expected in the range of 24.5% to 26.0% compared to 24.1% last year. Management also expects non-GAAP earnings per share between 40 cents and 42 cents as compared to 44 cents in the year-ago period. The Zacks Consensus Estimate stood at 38 cents.  

Symantec also provided fiscal 2014 guidance. The company expects its revenues to be in the range of $6.666 to $6.706 billion, a marginal increase from the year-ago period revenue of $6.906 billion. The Zacks Consensus Estimate is pegged at $6.65 billion.

For the fiscal 2014, management expects an increase in its operating expenses owing to its operational efficiency. Non-GAAP operating margins are expected in the range of 26.9% to 27.2%, up from 25.5% in the year-ago period. Moreover, non-GAAP earnings are expected to increase on a year-over-year basis in the range of $1.85 to $1.87 from $1.76 per share. The Zacks Consensus Estimate is pegged at $1.75 per share.

Our Take

Symantec has delivered better-than-expected third-quarter 2014 results. Nonetheless, revenue declines across all its segments were witnessed due to lower-than-expected demand. Re-organization of the sales strategy positively impacted operating margins   which in turn supported net income. However, the guidance for the fourth quarter remained tepid but fiscal year outlook was encouraging.

The uncertainty over PC sales is going to affect its User Productivity & Production throughout the year. Continued investments to bring about new and innovative products could also impact margins in the near term. Additionally, as smaller companies like Kaspersky are consistently launching comparable products as well as competition from Intel (INTC - Analyst Report) and Microsoft (MSFT - Analyst Report) remain the headwinds for the company.

Currently, Symantec carries a Zacks Rank #3 (Hold). Other than Symantec, Lexmark International (LXK - Analyst Report) also warrants a look as it carries a Zacks Rank #1 (Strong Buy).

Please login to Zacks.com or register to post a comment.

New to Zacks?

Start Here

Zacks Investment Research

Close

Are you a new Zacks Member or a visitor to Zacks.com?

Top Zacks Features

My Portfolio Tracker

Is it Time to Sell?

One of the most important steps you can take today is to set up your portfolio tracker on Zacks.com. Once you do, you'll be notified of major events affecting your stocks and/or funds with daily email alerts.

More Zacks Resources

Zacks Rank Home - Evaluate your stocks and use the Zacks Rank to eliminate the losers and keep the winners.

Mutual Fund Rank Home - Evaluate your funds with the Mutual Fund Rank for both your personal and retirement funds.

Stock/Mutual Fund Screening - Find better stocks and mutual funds. The ones most likely to beat the market and provide a positive return.

My Portfolio - Track your Portfolio and find out where your stocks/mutual funds stack up with the Zacks Rank.

Zacks #1 Rank Top Movers for Zacks #1 Rank Top Movers

Company Symbol Price %Chg
RPC INC RES 24.91 +8.35%
LITHIA MOTO… LAD 94.59 +4.60%
DELTA AIR L… DAL 39.15 +3.90%
FLAMEL TECH… FLML 14.51 +3.50%
SOUTHWEST A… LUV 28.87 +2.92%