Earnings Preview: BMC Inc.

BMC Inc. ( BMC - Analyst Report ) is scheduled to announce its first quarter 2013 results on July 31, 2012 and we do not see much variation in the analysts’ estimates at this point.

Third Quarter Overview

The company reported fourth quarter 2012 earnings per share of 59 cents, lagging the Zacks Consensus Estimate of 66 cents.

Total revenue in the reported quarter was $564.7 million, up 0.4% year over year. While none of the segments performed well in the quarter, the SaaS business did see higher recurring revenue and total bookings.

Operating income dropped significantly despite flattish revenue growth because expenses increased a considerable extent and the company was not able to implement efficient cost-control measures.

Fiscal 2013 is not expected to be much better, as the company expects non-GAAP diluted earnings per share in the range of $3.49 to $3.59, up from $2.67. BMC expects cash flow from operations to be between $800.0 million and $850.0 million for fiscal 2013, which at the midpoint represents a mere 3% increase from fiscal 2012.

Agreement of Analysts

Out of the seven analysts providing estimates for the first quarter, none revised their estimates over the last 30 days. There were also no estimate revisions for fiscal 2013 and 2014 estimates over the last 30 days. However, estimates have moved down over the last 90 days, following the company’s weak fourth quarter results and 2013 outlook.

The lack of estimate revisions primarily reflects the absence of any major catalysts over the last 30 days. Consequently, the analysts are also maintaining their outlook for the first quarter of 2013.

Some of the analysts are of the opinion that although competition is gradually intensifying in the SaaS space, BMC’s focus on its Service segment has enabled it to regain some market share. This apart, the BMC RemedyForce is gaining momentum and is expected to generate additional revenue.

Moreover, the company is slowly expanding its customer base both as a result of market expansion and at the expense of competitors. Australia’s Monash University selected BMC Software’s Business Service Management (BSM) platform in order to support its information and communication technology (ICT) services.

On the other hand, rationalization of expenditure by different government and private customers may weigh down the overall business volumes of the company. The current economic turmoil may also affect the business going forward.

Magnitude of Estimate Revisions

The magnitude of revisions is therefore minimal, with no movement over the last 30 days. However, estimates have moved down since the company reported its fourth quarter results.

Overall, estimates for the upcoming quarter have dropped 3 cents to 60 cents over the last 90 days. Again, estimates for fiscal 2013 and 2014 have gone down by 6 cents and 20 cents to $2.91 and $3.22, respectively, over the last 90 days.

Recommendation

BMC reported unexciting fourth quarter results but guidance was modest for fiscal 2013. However, the company witnessed substantial cloud bookings.

This apart, industry experts believe that the BMC version of the SaaS-based ITSM offering is not gaining traction. But new deal wins by the company and its customers provide the much needed incentive for the investors.

Moreover, we are a bit apprehensive about the growing competition from big players such as IBM Inc. ( IBM - Analyst Report ) , Hewlett-Packard Company ( HPQ - Analyst Report ) , EMC Corp. ( EMC - Analyst Report ) and CA Inc. ( CA - Analyst Report ) , which bundle hardware and software offerings.

BMC currently holds a Zacks #3 Rank, which implies a short-term Hold rating.