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CA Inc. (CA - Analyst Report) reported third-quarter 2013 adjusted earnings per share (EPS) of 61 cents, ahead of the Zacks Consensus Estimate of 57 cents.

Revenue

Total revenues in the reported quarter were $1.19 billion, down 5.0% from $1.26 billion in the year-ago quarter. When adjusted for currency, revenue declined 4.0% year over year. This was due to a decline in Mainframe Solutions.

Revenue Segments

Mainframe Solutions generated revenue of $622.0 million, down 9.0% year over year. Enterprise Solutions revenue was $476.0 million, flat year over year. Services revenue was down 6.0% year over year to $97.0 million.

Bookings

The company witnessed total bookings of $1.261 billion, down 2.0% on a reported basis. The single license payment in the third quarter of fiscal 2012 resulted in a decline of 3.0 percentage points to fiscal year 2013 total bookings.

North America bookings were $685 million, declining 11.0% on a reported basis. The single license payment in the third quarter of fiscal year 2012, contributed 5.0% to the decline from the year ago period.

International bookings stood at $576 million, improving 11.0% on a reported basis.

Operating Results

Reported operating income was $370.0 million, down 10.0 % from the year-ago quarter, due to inefficient cost management.

On a GAAP basis, net income was 55 cents per share versus 54 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 third quarter stood at 61 cents per share versus 62 cents in the prior-year quarter.

Balance Sheet and Cash Flow

CA generated cash flow from continuing operations of $566 million, up 43% on a reported basis. The improvement in cash flow can be attributed to a $178.0 million increase in cash collections, including a single installment payment of $150 million. Cash, cash equivalents and investments was $2.55 billion.

Guidance

The company expects total revenue to be in a range of negative 3.0% to negative 1.0%. CA expects growth in non-GAAP earnings per share from continuing operations to be in the range of 6.0%–10.0%, amounting to $2.36 to $2.44.

Our Take

CA Inc. delivered modest third-quarter results with the bottom line surpassing the Zacks Consensus Estimate. A decline in business revenue led to a year-over-year drop in total revenues. Lower bookings reflected lackluster demand for CA’s products and solutions. Further, the company’s fiscal 2013 results reflect a few uncertainties.

However, we are optimistic about the company’s increased cloud exposure, for which it received an accolade from an IT research firm, IDC. The firm elected CA as the market leader in cloud systems management. 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.

On the flip side, intense competition in the software and cloud computing space from major players like IBM (IBM - Analyst Report), reduction in tech spending and increased exposure to Europe add to the woes.

Currently, CA has a Zacks Rank #3 (Hold).

Investors should look out for some other stocks that are slated to report this earnings season with positive Zacks Rank and Expected Surprise Prediction or ESP (Read: Zacks Earnings ESP: A Better Method).

Geospace Technologies Corp. (GEOS - Snapshot Report) has a Zacks Rank #2 (Buy) with an ESP of +21.2%. Interdigital Inc. (IDCC - Snapshot Report) has a Zacks Rank #2 (Buy) with an ESP of +350.0%.

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