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Yesterday, after market close, Amdocs Limited (DOX - Analyst Report) declared its financial results for the fourth quarter of fiscal 2011, in line with the Zacks Consensus Estimate. However, Amdocs provided a weak financial outlook for the ensuing first quarter of fiscal 2012, primarily due to economic volatility in Europe.  

Quarterly net income, on a GAAP basis, was $87.4 million or 49 cents per share compared with a net income of $94.7 million or 48 cents per share in the prior-year quarter. Adjusted (excluding special items) EPS stood at 57 cents in the reported quarter, exactly in line with the Zacks Consensus Estimate. Quarterly total revenue of approximately $812.2 million increased 6.6% year over year, surpassing the Zacks Consensus Estimate of $809 million. Newly acquired Bridgewater System contributed $7 million in revenue.

Quarterly gross margin was 35.3% compared with 36.2% in the year-ago quarter. Reported operating income was approximately $104.6 million, up 1.6% year over year. Operating margin was 12.9% versus 13.5% in the prior-year quarter. At the end of fiscal 2011, total order backlog was $2,670 million compared with $2,620 million at the end of the previous quarter. In the reported quarter, the company repurchased shares worth $192 million.

During fiscal 2011, Amdocs generated $535.5 million in cash from operations compared with $685.2 million in fiscal 2010. Free cash flow (cash flow from operations less capital expenditure) in fiscal 2011 was $425.7 million compared with $598.3 million in fiscal 2010. At the end of fiscal 2011, Amdocs had approximately $1,173.5 million in cash and marketable securities and $250 million of outstanding debt on its balance sheet compared with $1,433.3 million of cash and marketable securities and $200 million of outstanding debt at the end of fiscal 2010.

Segment Wise Results

Service revenue was $780.7 million, up 6% year over year. License revenue was approximately $31.5 million, up 24.8% year over year. Technologically, Customer Experience Systems revenue was $764.4 million, up 7% year over year. Directory revenue was $47.6 million, up 0.6%.4 year over year. The company’s core Managed Services revenue was $384.8 million, up 8.2% year over year.

Geographically, North America generated $585.1 million, up 2.7% year over year; Europe generated $102 million, up 12.1% year over year; while the Rest of the World contributed the remaining $125.1 million, up 23.3% year over year. Revenue from the emerging markets was $79.5 million, up 14.4% year over year.

Future Financial Outlook

Management expects first quarter of fiscal 2012 revenue in the range of $805 million - $825 million. Its mid point of $815 million is below the current Zacks Consensus Estimate of 4823 million. EPS, on a GAAP basis, is expected between 49 cents – 57 cents. Non-GAAP EPS, including 5 cents – 6 cents per share of equity-based compensation expense, is projected in the range of 56 cents – 61 cents. Its mid point of 58 cents fell below the current Zacks Consensus Estimate of 60 cents.

Recommendation

Continuous growth momentum in the telecom and cable sector along with the recent acquisition of MX Telecom and Canada-based Bridgewater Systems will allow Amdocs to gain traction in Europe and the emerging nations of Asia and Latin America. However, higher operating expenses coupled with stiff competition from Convergys Corp. (CVG - Snapshot Report) and Comverse Technology will act as headwind for the stock, going forward.

We, thus, maintain our long-term Neutral recommendation for Amdocs. Currently, Amdocshas a Zacks#3 Rank, implying a short-term Hold rating on the stock.

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