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Symantec Corporation (SYMC - Analyst Report) reported adjusted earnings (excluding amortization, restructuring and other one-time items but including stock-based compensation) of 42 cents in the fourth quarter of 2014, comfortably beating the Zacks Consensus Estimate of 38 cents. On a year-over-year basis, adjusted earnings increased 3.7% from the year-ago quarter.

Revenues

Symantec’s revenues on non-GAAP basis of $1.65 billion came in line with the Zacks Consensus Estimate but were down 5.6% year over year. The decline was primarily due to lower revenues from Content, Subscription and Maintenance segment which was down 4.8% on a year-over-year basis and a 11.3% drop in revenues from License.

Revenues from the User Productivity & Protection segment declined 6.0% year over year to $704 million, primarily due to continued softness in the Endpoint Management segment. Information Security segment revenues decreased 2.0% on a year-over-year basis to $321 million, primarily due to weak mail, web and data center security businesses which more than offset the improvement in authentication and DLP businesses.

Information Management revenues decreased 7% year over year to $625 million, primarily due to Backup Exec and information availability business which offset the increase in NetBackup appliances.

The International market revenues decreased 6% 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 5%. The Europe, Middle East and Africa region’s revenues also declined 3% on a year over year basis. The Asia-Pacific/Japan revenues registered a decline of 11% 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 up 40 basis points (bps) on a year-over-year basis to 83.7% primarily due to lower customer support costs.

Adjusted operating margins expanded 270 bps to 24.6% from the year-ago quarter primarily due to lower operating expenses as a percentage of revenues. Operating expenses, as a percentage of revenues, declined 229 bps primarily due to benefits from Symantec’s restructuring.

Symantec reported adjusted net income (excluding amortization, restructuring and other one-time items but including stock-based compensation) of $291.8 million or 42 cents compared with $286.9 million or 40 cents reported in the year-ago quarter.

Balance Sheet & Cash Flow

Symantec exited the quarter with cash, cash equivalents and short-term investments of $4.08 billion compared with $3.88 billion in the previous quarter. Long-term debt remained flat at $2.09 billion. Cash flow from operating activities was $449.0 million.

During the quarter, Symantec spent $125 million to repurchase 5.5 million shares at a price of $22.85. The company has nearly $658 million remaining under the current stock repurchase plan. The company also paid dividends worth $104 million (15 cents per share).

Guidance

For the first quarter of 2015, the company expects revenues in the range of $1.65 to $1.69 billion, down from $1.71 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 24.1% to 24.5% compared with 25.3% last year. Management also expects non-GAAP earnings per share between 41 cents and 43 cents versus 44 cents in the year-ago period. The Zacks Consensus Estimate stands at 39 cents.  

Symantec also provided fiscal 2015 guidance. The company expects its revenues in the range of $6.63 to $6.77 billion, compared with $6.7 billion reported in the year-ago period. The Zacks Consensus Estimate is pegged at $6.71 billion.

For fiscal 2015, management expects an increase in its operating expenses owing to its operational efficiency. Non-GAAP operating margins are expected in the range of 27.7% to 28.2%, up from 27.5% in the year-ago quarter. Moreover, non-GAAP earnings are expected to increase on a year-over-year basis in the range of $1.84 to $1.92 from $1.92 per share. The Zacks Consensus Estimate is pegged at $1.67.

Our Take

Symantec has delivered modest fourth-quarter 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. While the first-quarter guidance remained tepid, fiscal-year outlook was encouraging.

Continued investments to launch new and innovative products could also impact margins in the near term. Nonetheless, investing in growth areas such as Enterprise backup, Storage Management and Security businesses are expected to drive the company’s long-term prospective. The company’s cost cutting initiatives are expected to continue which will support operating results.

However, 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. The uncertainty over PC sales adds to the woes.

Currently, Symantec carries a Zacks Rank #4 (Sell). Other than Symantec, Rambus Inc. (RMBS - Snapshot Report) which sports a Zacks Rank #1 (Strong Buy) also warrants a look.

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