CA Beats on EPS, Revs Lag Y/Y

CA Inc. (CA - Analyst Report) reported first quarter 2013 adjusted earnings per share (EPS) of 60 cents, ahead of the Zacks Consensus Estimate of 56 cents.

Revenue

Total revenue in the reported quarter came in at $1.145 billion, down 1.5% from $1.163 billion in the year-ago quarter. On a reported basis, revenue from existing products and services reduced by 2 percentage points, whereas the revenue generated from acquired technologies slightly below 100 basis points.

Region wise, 63.0% of the company’s revenue in the first quarter came from North America while the remaining 37.0% came from International operations.

Revenue Segments

As per revenue segments, Mainframe Solutions revenue was $628 million, down 3.0% year over year. Enterprise Solutions revenue was $426 million, up 2.0% year over year. Services revenue was up 4.0% year over year to $91 million.

Bookings

The company witnessed total bookings of $553 million in the first quarter, down 36.0% year over year, primarily due to a decrease in renewals. The company had previously stated that it expects fiscal year 2013 renewal portfolio to decline in the single digit range annually, with the first quarter being the low point.

Moreover, North America bookings were $326.0 million, down 39.0% year over year while international bookings were down 31.0% year over year to $227 million.

Operating Results

Income from continuing operation was $240.0 million, up 5.3% from $228.0 million in the year-ago quarter, aided by better cost management by the company.

Net income on a GAAP basis in the reported quarter was 51 cents per share versus 48 cents per share in the year-ago quarter. Excluding special items, such as software amortization, intangible amortization, restructuring and other and hedging gains/losses, but including the stock-based compensation expenses, non-GAAP net income in the first quarter stood at 60 cents per share versus 51 cents in the prior-year quarter.

Balance Sheet and Cash Flow

CA Inc. generated cash flow from continuing operations of $183.0 million compared with $143.0 million in the year-ago quarter. Cash, cash equivalents and marketable securities were $2.5 billion versus $2.7 billion in the previous quarter.

Guidance

For fiscal year 2013, the company expects revenue growth in a range of 1.0% to 2.0%. GAAP diluted earnings per share from continuing operations growth in constant currency in a range of 12.0% to 14.0%.

Non-GAAP diluted earnings per share from continuing operations are expected to grow in the 10.0% to 12.0% range. This translates to reported non-GAAP diluted earnings per share of $2.45 to $2.50 and cash flow from continuing operations of $1.54 billion to $1.57 billion.

Our Take

CA Inc. posted decent first quarter results exceeding the earnings estimates, although revenue declined on a year-over-year basis. This apart, the company witnessed decline in bookings. However, the product demand trend was moderate in the reported quarter. This apart, the company also witnessed lower income from continuing operation.

We believe that the company provided decent fiscal 2013 guidance. However, we are concerned about intense competition in the software & cloud computing space from big players such as IBM Corp. (IBM - Analyst Report) and Hewlett-Packard Company (HPQ - Analyst Report). In addition, its high debt balance, reduction in tech spending by government agencies and European exposure may pose some challenges going forward.

The company has a short-term Zacks #3 Rank. (Hold rating).