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Symantec (SYMC) Tops on Q3 Earnings, Down on Tepid View
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Symantec Corporation reported third-quarter fiscal 2017 results. The company’s adjusted earnings (excluding deferred revenues fair value, amortization, restructuring and other one-time items but including stock-based compensation) of 22 cents per share came a penny ahead of the Zacks Consensus Estimate. On a year-over-year basis, it remained flat.
Furthermore, on a non-GAAP basis, Symantec’s earnings came in at 32 cents per share, which not only came ahead of its own guidance range of 27 cents to 29 cents but also marked a year-over-year increase of 23%. The year-over-year improvement in non-GAAP earnings was mainly driven by increased sales.
Despite a strong bottom-line performance, shares of Symantec fell approximately 4% in yesterday’s after-hour trade as the company’s top-line results and fourth quarter revenue outlook fell short of analysts’ expectations.
Nonetheless, the stock has outperformed the Zacks categorized Computer-Software industry in the year-to-date period. Symantec shares gained 11% in the said period while the industry’s gain was just 5.6%.
Quarter in Detail
Symantec’s revenues of $1.041 billion increased 14.5% year over year mainly driven by strong performance at the company’s Enterprise Security segment. However, it fell short of the Zacks Consensus Estimate of $1.085 billion.
Nonetheless, adjusted for deferred revenues fair value, revenues were $1.088 billion compared with $909 million in the year-ago quarter. Moreover, the company’s non-GAAP revenues were above the mid-point of its own guidance $1.070 billion to $1.090 billion (mid-point: $1.080 billion).
Segment-wise, the Consumer Security division witnessed a 4% year-over-year decline in revenues, while revenues at Enterprise Security increased 30% on a year-over-year basis. Moreover, adjusted for deferred revenues fair value, Enterprise Security revenues surged 40%.
Symantec’s adjusted gross profit of $917 million was up 19.7%, primarily attributable to a higher revenue base and lower cost of goods sold. Consequently, as a percentage of revenues, gross margin improved 380 basis points (bps) on a year-over-year basis to 86.9%.
Furthermore, adjusted operating income increased 8.3% year over year to $234 million, as the benefits from increased revenues and lower cost of goods sold were partially offset by a 24.2% jump in adjusted operating expenses. Consequently, adjusted operating margin contracted 130 bps year over year to 22.5%.
On a non-GAAP basis, operating income grew 30.3% year over year to $331 million while margin improved 250 bps to 30.4%. Moreover, non-GAAP operating margin was higher than the company’s guidance range of 27% to 28%.
The better-than-expected margin was mainly driven by strong top-line growth and realization of cost savings ahead of time. As per Symantec, it remains on track to realize over $200 million of cost savings in fiscal 2017 through its cost restructuring initiatives and synergies from the newly acquired business, Blue Coat.
Adjusted net income for the quarter came in at $136.6 million compared with $151.6 million in the year-ago quarter. However, on per share basis, adjusted earnings per share were flat year over year at 22 cents as a lower numerator was offset by a lower denominator.
Balance Sheet & Cash Flow
Symantec exited the quarter with cash, cash equivalents and short-term investments of $5.575 billion, compared with $5.619 billion last quarter. Long-term debt was $6.358 billion, down from $6.576 billion in the previous quarter.
During the first three quarters of 2016, Symantec used operating cash flow of $573 million. Moreover, it paid $173 million as dividend during the period.
Guidance
Symantec did not provide any update on the fiscal 2017 guidance. It should be noted that during the second-quarter earnings release, the company had reiterated its non-GAAP revenue guidance but raised its non-GAAP operating margin and earnings per share outlook for fiscal 2017. For fiscal 2017, Symantec still expects revenues in a range of $4.040 billion to $4.120 billion (mid-point $4.08 billion). Non-GAAP operating margin is now anticipated in a range of 27% to 29% (previously 26%–28%). Non-GAAP earnings per share are now expected to be $1.12 to $1.18 (previously $1.08 to $1.14).
However, it provided guidance for the fourth quarter. For the fourth quarter of fiscal 2017, Symantec expects GAAP and non-GAAP revenues in a range of $1.039 billion – $1.059 billion (mid-point $1.049 billion) and $1.070 billion – $1.090 billion (mid-point $1.080 billion), respectively. The Zacks Consensus Estimate is pegged at $1.11 billion.
GAAP and non-GAAP operating margin is projected in a range of 1%–3% and 27%–29%, respectively. Management expects to report a breakeven to loss of 2 cents on a GAAP basis for the fourth quarter. However, on a non-GAAP basis, it expects earnings between 27 cents and 29 cents.
LifeLock Acquisition
During the third quarter of fiscal 2017, Symantec entered into a definitive agreement to acquire Arizona-based LifeLock Inc. for $2.3 billion. The company anticipates completing the acquisition on Feb 9.
In connection with this, the company yesterday announced raising $1 billion in aggregate principal amount by issuing senior unsecured notes due 2025.
In our opinion, the acquisition will be a strategic fit for Symantec, which is trying hard to expand its business in the high growth area of next-generation cybersecurity. The acquisition will help Symantec enhance its capabilities in identity protection, which is currently a huge concern for almost every sector, be it financials, retail or technology.
Symantec expects the LifeLock acquisition to contribute about $100 million in revenues and around $9 million of non-GAAP earnings before interest and taxes in the fourth quarter. However, the benefits will not impact its net income as these will be offset by incremental interest expenses from the debt used to fund the transaction.
Our Take
Symantec reported modest third-quarter results wherein its bottom line surpassed the Zacks Consensus Estimate but the top line missed the same. However, the company exceeded its own guidance on all metrics.
Symantec Corporation Price, Consensus and EPS Surprise
According to Symantec CFO, Nick Noviello, “Our third quarter results exceeded our constant currency revenue, operating margin, and EPS guidance. In just two quarters since combining Symantec and Blue Coat we are tracking ahead of schedule on product integrations, cost savings and synergies. We are pleased to be increasing our fiscal year 2017 financial outlook.”
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.
Nonetheless, we are disappointed by the company’s fourth quarter revenue guidance, which fell short of our estimate. Furthermore, the company’s announcement of issuing another $1 billion of senior notes to fund the acquisition of LifeLock will increase its interest expenses, thereby negatively impacting its bottom-line going forward.
Moreover, smaller companies like Kaspersky are consistently launching comparable products. These, along with competition from the likes of Microsoft (MSFT - Free Report) , remain headwinds. The uncertainty over PC sales adds to its woes.
Currently, Symantec carries a Zacks Rank #4 (Sell).
The stock has surpassed the Zacks Consensus Estimate thrice while matching the same once in the trailing four quarters. It has an average positive earnings surprise of 6.02%.
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Symantec (SYMC) Tops on Q3 Earnings, Down on Tepid View
Symantec Corporation reported third-quarter fiscal 2017 results. The company’s adjusted earnings (excluding deferred revenues fair value, amortization, restructuring and other one-time items but including stock-based compensation) of 22 cents per share came a penny ahead of the Zacks Consensus Estimate. On a year-over-year basis, it remained flat.
Furthermore, on a non-GAAP basis, Symantec’s earnings came in at 32 cents per share, which not only came ahead of its own guidance range of 27 cents to 29 cents but also marked a year-over-year increase of 23%. The year-over-year improvement in non-GAAP earnings was mainly driven by increased sales.
Despite a strong bottom-line performance, shares of Symantec fell approximately 4% in yesterday’s after-hour trade as the company’s top-line results and fourth quarter revenue outlook fell short of analysts’ expectations.
Nonetheless, the stock has outperformed the Zacks categorized Computer-Software industry in the year-to-date period. Symantec shares gained 11% in the said period while the industry’s gain was just 5.6%.
Quarter in Detail
Symantec’s revenues of $1.041 billion increased 14.5% year over year mainly driven by strong performance at the company’s Enterprise Security segment. However, it fell short of the Zacks Consensus Estimate of $1.085 billion.
Nonetheless, adjusted for deferred revenues fair value, revenues were $1.088 billion compared with $909 million in the year-ago quarter. Moreover, the company’s non-GAAP revenues were above the mid-point of its own guidance $1.070 billion to $1.090 billion (mid-point: $1.080 billion).
Segment-wise, the Consumer Security division witnessed a 4% year-over-year decline in revenues, while revenues at Enterprise Security increased 30% on a year-over-year basis. Moreover, adjusted for deferred revenues fair value, Enterprise Security revenues surged 40%.
Symantec’s adjusted gross profit of $917 million was up 19.7%, primarily attributable to a higher revenue base and lower cost of goods sold. Consequently, as a percentage of revenues, gross margin improved 380 basis points (bps) on a year-over-year basis to 86.9%.
Furthermore, adjusted operating income increased 8.3% year over year to $234 million, as the benefits from increased revenues and lower cost of goods sold were partially offset by a 24.2% jump in adjusted operating expenses. Consequently, adjusted operating margin contracted 130 bps year over year to 22.5%.
On a non-GAAP basis, operating income grew 30.3% year over year to $331 million while margin improved 250 bps to 30.4%. Moreover, non-GAAP operating margin was higher than the company’s guidance range of 27% to 28%.
The better-than-expected margin was mainly driven by strong top-line growth and realization of cost savings ahead of time. As per Symantec, it remains on track to realize over $200 million of cost savings in fiscal 2017 through its cost restructuring initiatives and synergies from the newly acquired business, Blue Coat.
Adjusted net income for the quarter came in at $136.6 million compared with $151.6 million in the year-ago quarter. However, on per share basis, adjusted earnings per share were flat year over year at 22 cents as a lower numerator was offset by a lower denominator.
Balance Sheet & Cash Flow
Symantec exited the quarter with cash, cash equivalents and short-term investments of $5.575 billion, compared with $5.619 billion last quarter. Long-term debt was $6.358 billion, down from $6.576 billion in the previous quarter.
During the first three quarters of 2016, Symantec used operating cash flow of $573 million. Moreover, it paid $173 million as dividend during the period.
Guidance
Symantec did not provide any update on the fiscal 2017 guidance. It should be noted that during the second-quarter earnings release, the company had reiterated its non-GAAP revenue guidance but raised its non-GAAP operating margin and earnings per share outlook for fiscal 2017. For fiscal 2017, Symantec still expects revenues in a range of $4.040 billion to $4.120 billion (mid-point $4.08 billion). Non-GAAP operating margin is now anticipated in a range of 27% to 29% (previously 26%–28%). Non-GAAP earnings per share are now expected to be $1.12 to $1.18 (previously $1.08 to $1.14).
However, it provided guidance for the fourth quarter. For the fourth quarter of fiscal 2017, Symantec expects GAAP and non-GAAP revenues in a range of $1.039 billion – $1.059 billion (mid-point $1.049 billion) and $1.070 billion – $1.090 billion (mid-point $1.080 billion), respectively. The Zacks Consensus Estimate is pegged at $1.11 billion.
GAAP and non-GAAP operating margin is projected in a range of 1%–3% and 27%–29%, respectively. Management expects to report a breakeven to loss of 2 cents on a GAAP basis for the fourth quarter. However, on a non-GAAP basis, it expects earnings between 27 cents and 29 cents.
LifeLock Acquisition
During the third quarter of fiscal 2017, Symantec entered into a definitive agreement to acquire Arizona-based LifeLock Inc. for $2.3 billion. The company anticipates completing the acquisition on Feb 9.
In connection with this, the company yesterday announced raising $1 billion in aggregate principal amount by issuing senior unsecured notes due 2025.
In our opinion, the acquisition will be a strategic fit for Symantec, which is trying hard to expand its business in the high growth area of next-generation cybersecurity. The acquisition will help Symantec enhance its capabilities in identity protection, which is currently a huge concern for almost every sector, be it financials, retail or technology.
Symantec expects the LifeLock acquisition to contribute about $100 million in revenues and around $9 million of non-GAAP earnings before interest and taxes in the fourth quarter. However, the benefits will not impact its net income as these will be offset by incremental interest expenses from the debt used to fund the transaction.
Our Take
Symantec reported modest third-quarter results wherein its bottom line surpassed the Zacks Consensus Estimate but the top line missed the same. However, the company exceeded its own guidance on all metrics.
Symantec Corporation Price, Consensus and EPS Surprise
Symantec Corporation Price, Consensus and EPS Surprise | Symantec Corporation Quote
According to Symantec CFO, Nick Noviello, “Our third quarter results exceeded our constant currency revenue, operating margin, and EPS guidance. In just two quarters since combining Symantec and Blue Coat we are tracking ahead of schedule on product integrations, cost savings and synergies. We are pleased to be increasing our fiscal year 2017 financial outlook.”
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.
Nonetheless, we are disappointed by the company’s fourth quarter revenue guidance, which fell short of our estimate. Furthermore, the company’s announcement of issuing another $1 billion of senior notes to fund the acquisition of LifeLock will increase its interest expenses, thereby negatively impacting its bottom-line going forward.
Moreover, smaller companies like Kaspersky are consistently launching comparable products. These, along with competition from the likes of Microsoft (MSFT - Free Report) , remain headwinds. The uncertainty over PC sales adds to its woes.
Currently, Symantec carries a Zacks Rank #4 (Sell).
A better-ranked stock in the computer software space is Check Point Software (CHKP - Free Report) , sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The stock has surpassed the Zacks Consensus Estimate thrice while matching the same once in the trailing four quarters. It has an average positive earnings surprise of 6.02%.
Zacks’ Best Private Investment Ideas
In addition to the recommendations that are available to the public on our website, how would you like to follow all Zacks' private buys and sells in real time?
Our experts cover all kinds of trades… from value to momentum . . . from stocks under $10 to ETF and option moves . . . from stocks that corporate insiders are buying up to companies that are about to report positive earnings surprises. You can even look inside exclusive portfolios that are normally closed to new investors. Starting today, for the next month, you can have unrestricted access. Click here for Zacks' private trades >>