Shares of Symantec Corporation went up more than 4% during yesterday’s after-hours trading session after the company announced better-than-expected results for the first quarter of fiscal 2017. Also, an encouraging outlook positively impacted the share price.

Quarter in Detail

The company’s adjusted earnings (excluding amortization, restructuring and other one-time items but including stock-based compensation) of 23 cents per share surpassed the Zacks Consensus Estimate of 20 cents.

On a GAAP basis, Symantec reported earnings of 11 cents per share compared with 4 cents reported in the year-ago quarter.

Although Symantec’s revenues of $884 million declined 3.1% year over year, it surpassed the Zacks Consensus Estimate of $878 million. However, quarterly revenues were above the mid-point of the management guided range of $865 million to $895 million (mid-point: $880 million).

According to Thomas Seifert, Symantec CFO, “Our revenue was above the mid-point of our guided range for Q1, driven by improved performance within Enterprise Security and continued in-line results from Consumer Security.”

Segment-wise, License revenues plunged 14% year over year, while Content, Subscription and Maintenance revenues dropped 3%.

The company’s realigned business segments include Consumer Security and Enterprise Security. The Consumer Security segment witnessed a 6% year-over-year decline in revenues, while revenues at Enterprise Security roughly remained flat on a year-over-year basis.

Symantec’s adjusted gross profit (excluding amortization, restructuring and other one-time items but including stock-based compensation) of $741 million was down 4.3%, primarily due to a lower revenue base and higher cost of goods sold. Consequently, as a percentage of revenues, gross margin was down 110 basis points (bps) on a year-over-year basis to 83.8%.

Adjusted operating margin (excluding amortization, restructuring and other one-time items but including stock-based compensation) was down 320 bps year over year to 23.1%, primarily due to lower revenues and increased expenses as a percentage of revenues.

Adjusted net income (excluding amortization, restructuring and other one-time items but including stock-based compensation) for the quarter came in at $140 million.

Balance Sheet & Cash Flow

Symantec exited the quarter with cash, cash equivalents and short-term investments of $6.118 billion, compared with $5.983 billion last quarter. Long-term debt was $2.605 billion, up from $2.207 billion in the previous quarter.

During the quarter, Symantec used operating cash flow of $742 million. During the quarter, the company declared a quarterly cash dividend of 7.5 cents per share, payable on Sep 14, 2016.

Guidance

The company updated its fiscal 2017 guidance. For fiscal 2017, Symantec now expects revenues of $4.040 billion to $4.120 billion (previously $3.49 billion to $3.58 billion). The Zacks Consensus Estimate is pegged at $3.527 billion.

Non-GAAP operating margin is now anticipated in the range of 26% to 28% (previously 26.5%–27.5%). Non-GAAP earnings per share are now expected to be $1.08 to $1.14 (previously $1.06 to $1.10).

For the second quarter of fiscal 2017, Symantec expects revenues in the range of $960 million to $990 million (mid-point: $975 million). The Zacks Consensus Estimate is pegged at $893 million.

Non-GAAP operating margin is projected in the range of 21%–24%. Management expects non-GAAP earnings per share of 18 cents to 21 cents.

Blue Coat Acquisition

Recently, Symantec completed the acquisition of Blue Coat, Inc., a leading web security solution provider, from private equity firm Bain Capital.

Symantec and Blue Coat had entered into a definitive agreement in June this year, per which Symantec paid a cash consideration of $4.65 billion for the acquisition.

The addition of Blue Coat is expected to enhance Symantec’s capabilities significantly. As per Symantec, the acquisition will not only provide economies of scale and bolster its existing portfolio, but will also provide necessary resources to develop solutions to “protect large customers and individual consumers against insider threats and sophisticated cybercriminals”.

The transaction is anticipated to help Symantec realize approximately $150 million of cost synergies by the end of fiscal 2018. This will be in addition to cost savings of $400 million under its previously announced cost-efficiency program.
 

SYMANTEC CORP Price, Consensus and EPS Surprise

SYMANTEC CORP Price, Consensus and EPS Surprise | SYMANTEC CORP Quote

Our Take

Symantec delivered stronger-than-expected results for the first quarter of fiscal 2017. However, revenues declined year over year mainly due to a shift in consumer buying preferences and unfavorable foreign currency exchange rates.

Nonetheless, the company raised its fiscal 2017 guidance and provided an encouraging second-quarter outlook. Also, investment in growth areas such as Enterprise Backup, Storage Management and Security businesses are expected to boost Symantec’s long-term prospects. Moreover, restructuring initiatives and synergies from acquisitions are expected to support its bottom line.

However, continued investments in product development and launch could impact margins in the near term.

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

Currently, Symantec carries a Zacks Rank #3 (Hold). A better-ranked stock in the technology sector is Facebook, Inc. , sporting a Zacks Rank #1 (Strong Buy).

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>