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

Revenue

Total revenue in the reported quarter came in at $1.15 billion, down 4.0% from $1.20 billion in the year-ago quarter and below the Zacks Consensus Estimate of $1.17 billion. When adjusted for currency, quarter’s revenue remained flat year over year. The decline was due to longer sales cycle, lower product sales and overall macro uncertainty.

Region wise, 63.4% of the company’s revenue in the second quarter came from North America while the remaining 36.6% came from International operations.

Revenue Segments

As per revenue segments, Mainframe Solutions revenue was $619.0 million, down 5.5% year over year. Enterprise Solutions revenue was $438.0 million, down 2.4% year over year. Services revenue was down 1.0% year over year to $95.0 million.

Bookings

The company witnessed total bookings of $837.0 million in the second quarter, down 13.9% year over year, primarily due to a decrease in renewals and lower product sales.

North America bookings were $500.0 million, down 25.0% year over year while international bookings grew 9.0% year over year to $337.0 million.

Operating Results

Reported operating income was $337.0 million, up 1.2% from $333.0 million in the year-ago quarter, aided by better cost management by the company.

Net income on a GAAP basis was 48 cents per share versus 47 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 second quarter stood at 56 cents per share versus 50 cents in the prior-year quarter.

Balance Sheet and Cash Flow

CA generated cash flow from continuing operations of $89.0 million compared with $183.0 million in the year-ago quarter. The decline was mainly due to lower billings growth and collection. Cash, cash equivalents and marketable securities were $2.2 billion versus $2.5 billion in the previous quarter.

Guidance

Considering the ongoing economic turmoil and lower bookings, CA reduced its forecasts for fiscal 2013. However, it would continue to introduce new products and solutions, expand partner networks and focus on cost reduction.

For fiscal year 2013, the company expects revenue in the range of $4.58–$4.67 billion reflecting a decline of 3.0%–1.0% in constant currency (previously up 1.0% to 2.0%). GAAP diluted earnings per share from continuing operations growth in constant currency in a range of 8.0% to 12.0% (previously up 12.0% to 14.0%). This growth in constant currency translates to GAAP EPS range of $1.99 to $2.07.

Non-GAAP diluted earnings per share from continuing operations are expected to grow in the 6.0% to 10.0% range (previously 10.0% to 12.0%). This translates to reported non-GAAP diluted earnings per share of $2.36 to $2.44. Cash flow from continuing operations is expected in the range of $1.38 billion to $1.44 billion (previously $1.54 billion to $1.57 billion).

Our Take

CA Inc. posted modest second quarter results marginally ahead of the Zacks Consensus Estimate on bottom line, but missing the same on top line. Revenue fell year over year due to lack of new business deals and lesser number of renewals. Bookings were lower reflecting lackluster demand for CA’s products and solutions. The company also reduced its fiscal 2013 outlook to reflect the ongoing macro uncertainties.

But we are hopeful on CA’s broadened cloud exposure for which the company received an accolade from an IT research firm, IDC. The firm elected CA as the market leader in cloud systems management market. Hence, we expect CA to capitalize on the growing demand for cloud in the long term. We are also encouraged by the company’s continuous share buyback and dividend payout.

However, we are concerned about the 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 ) as well as high debt balance, reduction in tech spending and European exposure.

Currently, CA has a Zacks #3 Rank, which translates into short-term Hold rating.