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CA Inc. (CA - Analyst Report) reported fourth-quarter fiscal 2014 adjusted earnings (excluding amortization, other gains and software development costs capitalized but including stock-based compensation) of 59 cents per share, which beat the Zacks Consensus Estimate of 56 cents. On a year-over-year basis, earnings decreased 9.8%.

Quarter Details

CA’s revenues of $1.11 billion decreased 3.1% from the year-ago quarter, but marginally beat the Zacks Consensus Estimate of $1.10 billion. The year-over-year decline was primarily due to 2.2%, 9.1% and 5.1% decline in Subscription and maintenance revenues (83.5% of total revenue), Professional Services revenues (8.1% of total revenue) and Software fees and other revenues (8.4% of total revenue), respectively.

Moreover, on a segment basis, revenues from CA’s Mainframe Solutions were down 1.1% on a year-over-year basis to $613.0 million. Revenues from Enterprise Solutions and Services decreased 4.5% and 9.1% year over year, respectively. Enterprise Solutions sales decreased primarily due to lower sales of new products. On the other hand, Services revenues were hit primarily by lower-than-expected engagements related to customer education and federal agencies.

North America and International revenues were down 2.4% and 4.2%, respectively, from the year-ago period. The company also witnessed 14.5% decrease in bookings.

The company inked 16 license agreements worth $10 million or more each (total contract value of $456 million) in the fourth quarter of fiscal 2014 compared to 20 license agreements (total contract value of $744 million) in the year-ago period.

CA reported adjusted income from continuing operations before interest and income taxes (including stock-based compensation but excluding other one-time items) of $309 million which was down 14.4% year over year. As a percentage of revenues, adjusted income from continuing operations before interest and income taxes was down 369 basis points primarily due to an increase in operating expenses, as a percentage of revenues, of the same magnitude on a year-over-year basis.

CA’s adjusted net income from continuing operations came in at $263.8 million or 59 cents compared to $296.5 million or 66 cents per share reported in the year-ago quarter.

CA exited the quarter with cash, cash equivalents and investments of $3.25 billion compared with $2.98 billion in the previous quarter. The company’s total long-term debt (including current portion) came in at $1.77 billion. CA generated $483.0 million in cash from operating activities.

Moreover, during the reported quarter, CA repurchased around 5 million shares for $167 million and paid $112 million as dividends. The company also authorized a $1 billion stock repurchase plan to be completed in three years.

Fiscal 2015 Guidance

The company provided fiscal 2015 outlook. For fiscal 2015, the company expects total revenue to decline in the range of 2.0% to 1.0% to $4.43 to $4.49 billion in constant currency. The Zacks Consensus Estimate for fiscal 2015 is pegged at $4.51 billion. CA expects non-GAAP earnings per share from continuing operations to decrease in the range of 21–19% to $2.45–$2.52 in constant currency, better than the Zacks Consensus Estimate of $2.41.

The company expects cash flow from operations to increase in a range of 5% to 12% to $1.06 to $1.13 billion in constant currency.

Our Take

Although CA reported better-than-expected fourth-quarter results, the year-over-year comparisons were not favorable. CA’s major revenue-generating segments were adversely affected during the reported quarter primarily due to lower-than-expected sales of new products. The company also provided a tepid outlook for the fiscal 2015 as well.

Nonetheless, we believe that the breadth of its products and the increased efficiency offered by them will help attract customers across sectors, lending stability to the business model. We are positive about CA’s increased cloud exposure. A decent renewal rate, modest cash position and share repurchase also appear encouraging.

On the other hand, increasing competition from IBM (IBM - Analyst Report), Oracle (ORCL - Analyst Report) and Hewlett Packard (HPQ - Analyst Report) and exposure to Europe remain the near-term headwinds.

CA, currently, has a Zacks Rank #3 (Hold).

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