Earnings Preview: Symantec Corp.

Symantec Corp. (SYMC - Analyst Report) is scheduled to announce its second quarter fiscal 2011 results on October 27 after market close, and we do not see any variation in analyst estimates at this point.

First Quarter Overview

Symantec reported encouraging first quarter fiscal 2011 numbers, with earnings per share of 35 cents beating the Zacks Consensus Estimate by 3 cents.

Symantec reported first quarter revenue of $1.43 billion, flat with the year-earlier quarter, but above the Zacks Consensus Estimate of $1.25 billion. However, after adjusting for currency translation, the quarter’s revenue grew 2.0% from the year-ago quarter. The sluggish performance is attributable to the cautious stance taken by the company’s IT customers.

Symantec witnessed strength in its Consumer segment, which was offset by flat growth in Services segment and a decline in Storage & Server Management segment.

Margins increased from the year-ago period. Net income, on a GAAP basis, increased 117.6% from the comparable period last year. Excluding special items like operating expense adjustment, non-cash interest expense, gain on sale of assets and amortization of intangibles, non-GAAP net income increased 2.5% year over year.

Symantec exited the quarter with cash and short-term investments of $2.74 billion and cash from operations of $335.0 million. During the quarter, Symantec repurchased 14 million shares at an average price of $14.49 per share.

For the second quarter, Symantec expects revenue to range between $1.445 billion and $1.465 billion, down 1.0% to 2.0% from the year-ago quarter. The company also expects GAAP diluted earnings per share to range between 9 cents and 10 cents and non-GAAP diluted earnings per share between 27 cents and 28 cents.

Agreement of Analysts

Out of the twelve analysts providing estimates for the second quarter, none have revised their estimates in the last thirty days. Neither was there any upward nor downward estimate revision noted for fiscal 2011.

The unchanged estimates point to the fact that there were no major catalysts during the quarter that could drive results. Consequently, analysts are sticking to the estimates projected post-first quarter earnings and are of the opinion that Symantec will deliver second quarter results in line with their expectations.

Though some analysts expect increased data center spending and strong security demand trends to drive results, they remain concerned about integration risk from the company’s recent acquisitions such as VeriSign Inc.’s (VRSN - Analyst Report) security business, Guardian Edge and PGP.

Magnitude of Estimate Revisions

Over the past 30 days, there were no changes to the Zacks Consensus Estimate for the second quarter or fiscal year. Moreover, there has been no change in the Zacks Consensus Estimate for the second quarter or the fiscal year since first quarter results. As a result, the Zacks Consensus Estimate remains at 25 cents for the second quarter and $1.16 for full-year 2011.

Our Take

The recent acquisition of McAfee Inc. (MFE) by the semiconductor giant Intel Corp. (INTC - Analyst Report) could fuel competition in the security software space, thus increasing investor concerns. But we believe that given its higher share in the fast-growing security market and the acquisition of VeriSign’s identity/authentication business, Symantec will be able to capitalize on potential opportunities.

We also believe that while its enhanced product portfolio and improved execution may lead to impressive second quarter revenue, pricing pressure is likely to hurt margins. Integration risks and an unimpressive guidance are other negatives.

Considering the above factors, we feel comfortable with our short-term Hold recommendation on Symantec, implying the Zacks #3 Rank.

Read the full analyst report on SYMC