Symantec Corporation (SYMC - Free Report) reported first-quarter fiscal 2019 non-GAAP earnings of 34 cents per share that beat the Zacks Consensus Estimate of 33 cents. Earnings per share were 33 cents, under ASC 605, in this quarter, flat year over year.
On a non-GAAP basis, Symantec generated revenues of $1.165 billion, which beat the Zacks Consensus Estimate of $1.149 billion. Under ASC 605, the figure was $1.175 billion, down 5.5% from the year-ago quarter.
Starting this quarter, Symantec adopted the new revenue recognition accounting standard, ASC 606. The comparisons with the year-ago quarter are in compliance with ASC 505.
The company benefited from strong growth in Consumer Digital Safety segment. However, lower-than-expected Enterprise Security implied billings were a dampener.
Moreover, given this, the company lowered its outlook for fiscal 2019, which raises concerns regarding its near-term prospects.
Let’s discuss quarterly results in details.
Quarter in Detail
Consumer Security revenues in the quarter were $600 million, reflecting organic growth of 6% from the year-ago quarter in constant currency.
However, Enterprise Security revenues of $565 million declined 14% from the year-ago period. Enterprise Security implied billings of $453 declined 20% year over year, adjusted for acquisitions and divestitures.
Nonetheless, the company is benefiting from Integrated Cyber Defense Platform, which drives significant cross-sell and up-sell opportunities. Moreover, key customer wins for Cloud Proxy, Cloud Access Security Broker, and cloud e-mail offerings were a positive.
The company shifted its business model to a more ratable one. In the first quarter, the company noted that 82% of Enterprise Security segment revenues were ratable.
However, contract length declined to 16.5 months during the quarter from 18.5 months in the preceding quarter.
Symantec reported non-GAAP operating income of $327 million. Under ASC 605, the figure was $313 million, which declined 17% from the year-ago quarter.
Non-GAAP operating margin (under ASC 605) contracted 370 bps to 27%. The decline was due to the divestiture of website security and related PKI products in Enterprise Security. Moreover, margins for Consumer Digital Safety were hurt by increased product development costs and allocated corporate costs.
Under ASC 606, the quarterly figure was 28.1%, reflecting $5 million increase in revenues and a $9 million decrease in commission expense due to the new accounting standard.
Balance Sheet & Cash Flow
Symantec exited the fiscal first quarter with cash, cash equivalents and short-term investments of $2.324 billion compared with $2.162 billion in the prior quarter. The company ended the quarter with long-term debt of $5.032 billion.
During the quarter, Symantec generated operating cash flow of $334 million.
Management notes that revenue growth in both Enterprise Security and Consumer Digital Safety segments coupled with cost reduction initiatives undertaken during the remainder of fiscal year 2019 will have a positive impact on operating margin in fiscal 2020.
Notably, the company expects $50 million of restructuring costs in connection with its plan to cut global head count by nearly 8%.
However, the company anticipates continuation of longer sales cycle to negatively impact Enterprise Security revenues. Moreover, foreign exchange headwinds have also been factored into the revenue guidance. The cost initiatives will have partial impact on operating margins this fiscal.
Nonetheless, the company remains optimistic about its entire cloud security stack, which includes Cloud Proxy, CASB, and Data Protection, as well as multi-factor authentication, anticipated to benefit from the ease of cloud adoption.
For fiscal 2019, Symantec has reduced its guidance. The company now expects non-GAAP revenues in the range of $4.670-$4.790 billion compared with earlier guided range of $4.760-$4.900 billion.
Non-GAAP operating margin is projected to be 30% compared with the earlier projection of 30-32%.
Non-GAAP earnings per share are anticipated to be in the range of $1.47 to $1.47 compared with $1.50-$1.65 projected earlier.
For the second quarter of fiscal 2019, Symantec anticipates non-GAAP revenues in the range of $1.130-$1.160 billion.
Non-GAAP operating margin is projected in the range of 30%. Further, management estimates earnings between 31 cents and 35 cents on a non-GAAP basis.
Zacks Rank & Key Picks
Symantec currently has a Zacks Rank #3 (Hold).
A few better-ranked stocks in the broader technology sector are YY Inc. (YY - Free Report) , Science Applications (SAIC - Free Report) and Verint Systems (VRNT - Free Report) , all sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Long-term earnings growth for YY, Science Applications and Verint is projected to be 26.4%, 5% and 10%, respectively.
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