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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 41 cents in the first quarter of fiscal 2015, comfortably beating the Zacks Consensus Estimate of 37 cents. On a year-over-year basis, adjusted earnings increased from 39 cents reported in the year-ago quarter.

 


Revenues

Symantec reported revenues on a non-GAAP basis of $1.74 billion, which not only came ahead of the Zacks Consensus Estimate of $1.66 billion but also increased 1.5% year over year. The increase was primarily due to reorganization of Symantec’s sales force, which resulted in better-than-expected growth in North America and the federal business. Moreover, strength in Backup Appliances, Data Loss Prevention and Trust Services businesses drove the year-over-year revenue increase.

Higher revenues from Content, Subscription and Maintenance segment (91% of the total revenues), up 3.6% on a year-over-year basis, offset a 14.8% drop in revenues from License (9% of total revenues).

Revenues from the User Productivity & Protection segment were flat year over year at $740.0 million, primarily due to continued softness in the Endpoint Management segment, which offset the increase in Enterprise Endpoint Protection segment. Information Security segment revenues increased 2% on a year-over-year basis to $345.0 million, primarily due to improvements in Trust Services and DLP businesses.

Information Management revenues were flat on a year-over-year basis and came in at  $650 million, primarily due to softness in Backup Exec business, which offset the increase in NetBackup appliances.

International market revenues increased 3% from the year-ago quarter. Moreover, the Americas, which include the United States, Latin America and Canada, witnessed year-over-year revenue growth of 1%. The Europe, Middle East and Africa region’s revenues also increased 5% on a year-over-year basis. The Asia-Pacific/Japan revenues however registered a decline of 2% year over year.

It is worth noting that Symantec unveiled Norton Anti-virus software for small businesses during the quarter.

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 38 basis points (bps) on a year-over-year basis to 82.9%, primarily due to lower margin appliance businesses and higher cost.

Adjusted operating margin (excluding amortization, restructuring and other one-time items but including stock-based compensation) contracted  75 bps to 22.1% from the year-ago quarter, primarily due to higher operating expenses as a percentage of revenues (up 37 bps year over year). Adjusted operating expenses increased 2.1% to $1.06 billion from the year-ago quarter due to higher research and development expenses, which also impacted margins.

Symantec reported adjusted net income (excluding amortization, restructuring and other one-time items but including stock-based compensation) of $281.5 million or 41 cents compared with $281.8 million or 39 cents reported in the year-ago quarter.

Balance Sheet & Cash Flow

Symantec exited the quarter with cash, cash equivalents and short-term investments of $4.05 billion compared with $4.08 billion in the previous quarter. Long-term debt remained flat at $2.09 billion. Cash flow from operating activities was $293.0 million.

During the quarter, Symantec spent $125 million to repurchase 6.0 million shares at a price of $20.71. The company has nearly $533.0 million remaining under the current stock repurchase plan. The company also paid dividends worth $104 million.

Guidance

For the second quarter of fiscal 2015, the company expects revenues in the range of $1.60 to $1.64 billion (mid-point $1.62 billion), down sequentially. The Zacks Consensus Estimate is pegged at $1.64 billion.

Moreover, non-GAAP operating margins are expected in the range of 25.1% to 25.9%, up sequentially. Management expects non-GAAP earnings per share between 40 cents and 44 cents (mid-point 42 cents), up sequentially. The Zacks Consensus Estimate stands at 40 cents.  

Symantec reiterated its fiscal 2015 guidance. The company expects revenues in the range of $6.63 to $6.77 billion (mid-point $6.7 billion). The Zacks Consensus Estimate is pegged at $6.70 billion.

For fiscal 2015, management expects an increase in operating expenses owing to its operational efficiency. Non-GAAP operating margin is expected in the range of 27.7% to 28.2%. Moreover, non-GAAP earnings per share are expected to increase on a year-over-year basis in the range of $1.84 to $1.92 (mid-point $1.88). The Zacks Consensus Estimate is pegged at $1.69.

Our Take

Symantec has delivered better-than-expected first-quarter results. Moreover, re-organization of its sales team and strength in Backup Appliances, Data Loss Prevention and Trust Services businesses positively impacted revenues. While the second-quarter revenue guidance was modest, the 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 prospects..

Moreover, Symantec’s restructuring initiatives and share buyback plans are expected to support the company’s bottom line.

However, smaller companies like Kaspersky are consistently launching comparable products. These along with competition from Intel (INTC - Analyst Report) and Microsoft (MSFT - Analyst Report) remain headwinds. The uncertainty over PC sales adds to the woes.

Currently, Symantec carries a Zacks Rank #3 (Hold). A better-ranked stock in the technology sector is NVIDIA Corporation (NVDA - Analyst Report) with a Zacks Rank #2 (Buy).

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