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CA Beats Q1 Earnings, Misses Revenues, FY15 Outlook Modest

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CA Inc. (CA - Free Report) reported first-quarter fiscal 2015 adjusted earnings (excluding amortization, other gains and software development costs capitalized but including stock-based compensation) of 62 cents per share, which beat the Zacks Consensus Estimate of 57 cents.


Quarter Details

CA’s revenues of $1.07 billion decreased 2.4% from the year-ago quarter and lagged the Zacks Consensus Estimate of $1.08 billion. The year-over-year decline was primarily due to 1.4%, 11.2% and 2.7% decline in Subscription and maintenance revenues (85.0% of total revenue), Professional Services revenues (8.1%) and Software fees and other revenues (6.9%), respectively.

Moreover, on a segment basis, revenues from CA’s Mainframe Solutions were down 0.8% on a year-over-year basis to $614.0 million. Revenues from Enterprise Solutions and Services decreased 2.7% and 11.2% year over year to $368.0 million and $87.0 million, respectively. Enterprise Solutions sales decreased primarily due to lower sales of new products. On the other hand, Services revenues were hit primarily by lower-than-expected professional services engagements with government agencies.

North America and International revenues were down 2.7% and 1.8%, respectively, from the year-ago period. The company also witnessed 9.1% decrease in bookings.

Nonetheless, CA witnessed a number of deal signings from customers such as Telephone Data Systems, Staples and Otter Products and added customers such as America Latina Logistica, Tata Sky and the National Cancer Institute in Brazil. Other than these, Fujitsu Services Limited in the U.K. will use CA's server monitoring, network monitoring and automation solutions according to a deal signed during the quarter.

Moving on, CA reported adjusted income from continuing operations before interest and income taxes (including stock-based compensation but excluding other one-time items) of $407.0 million, up 4.1% year over year. As a percentage of revenues, adjusted income from continuing operations before interest and income taxes were up 236 basis points primarily due to a decrease in operating expenses, as a percentage of revenues, of the same magnitude on a year-over-year basis.

CA’s adjusted net income from continuing operations came in at $273.7 million compared with $338.3 million per share reported in the year-ago quarter.

CA exited the quarter with cash, cash equivalents and investments of $3.255 billion compared with $3.252 billion in the previous quarter. The company’s total long-term debt (including current portion) came in at $1.77 billion. CA generated $166.0 million in cash from operating activities.

Moreover, during the reported quarter, CA repurchased around 1.7 million shares for $50.0 million and paid $111.0 million as dividends.

Fiscal 2015 Guidance

CA issued fiscal 2015 outlook. For fiscal 2015, the company expects total revenue to decline in the range of 2.0% to 1.0% to $4.34 to $4.40 billion in constant currency. The Zacks Consensus Estimate for fiscal 2015 is pegged at $4.39 billion. CA expects non-GAAP earnings per share from continuing operations to decrease in the range of 21.0–19.0% to $2.42–$2.49 in constant currency, better than the Zacks Consensus Estimate of $2.35.

The company expects cash flow from operations to increase in a range of 5.0–12.0% to $1.04–$1.11 billion in constant currency.

Our Take

CA reported mixed first-quarter results wherein the bottom line beat the Zacks Consensus Estimate but the top line fell short of the consensus mark. The year-over-year comparisons were not favorable either. CA’s major revenue generating segments were adversely affected during the reported quarter primarily due to lower-than-expected sales of new products. The company also provided a modest outlook for the fiscal 2015.

Nonetheless, we believe that the breadth of its products and the increased efficiency offered by them will help attract customers across sectors, lending stability to the business model. We are positive about CA’s increased cloud exposure. A decent renewal rate, modest cash position and share repurchase also appear encouraging.

On the other hand, increasing competition from International Business Machines (IBM - Free Report) and Hewlett Packard (HPQ - Free Report) and exposure to Europe remain the near-term headwinds.

CA, currently, has a Zacks Rank #4 (Sell).

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