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Oracle (ORCL) Q1 Earnings Beat Estimates, Revenues Up Y/Y

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Oracle Corporation (ORCL - Free Report) reported mixed first-quarter fiscal 2019 results. Non-GAAP earnings of 71 cents per share surpassed the Zacks Consensus Estimate of 68 cents. However, revenues of $9.2 billion marginally lagged the Zacks Consensus Estimate of $9.28 billion.

Earnings increased approximately 16.4% from the year-ago quarter (up 19% in cc). Further, revenues increased 1% year over year and 2% in cc which was within management’s guidance of 1-3%.

Structural Changes

The company had adopted a new Accounting Standards Codification ("ASC") 606 using full retrospective method in the fourth quarter.

The company had recently launched a bring-your-own-license (BYOL) program which enables customers to shift their existing on-premise licenses to the Oracle Cloud. In doing so, Oracle claims that licenses covered by the BYOL program can neither be defined as on-premise nor as cloud.

Consequently, the company now reports its new software licenses under its new Cloud license and on-premise license segment. Further, the company merged its Cloud SaaS, Cloud PaaS and IaaS along with its software license updates and product support into Cloud services and license support.

Share Price Movement

In the past year, the company’s shares have gained just 2.4%, underperforming the industry’s growth of 38.5%.

 

The share price decrease can be attributed to the new accounting standard adopted by the company and structural changes which it has undergone in the quarter. Oracle no longer intends to break out its cloud revenues and does not provide any guidance on SaaS, Cloud PaaS and IaaS. This move is likely to aggravate investor concern about the company's outlook.

The share price movement was also impacted by lower-than-expected revenues for the reported quarter and not so encouraging second-quarter earnings guidance.

Cloud Drove Solid Top Line

Oracle’s top-line growth benefited from the ongoing cloud-based momentum. Total cloud services and license support revenues (72% of total revenues) for the quarter advanced 3% (4% in constant currency) to $6.61 billion.

However, total cloud license and on-premise license decreased 3% year over year to $867 million year over year.

Management stated that Fusion ERP and Fusion HCM is more than $2.5 billion in the past 12 months. Fusion ERP was up 40% for the full year.

Further, the next-generation autonomous database launched by Oracle, which is supported by machine learning, is now available. This is a key catalyst for the company. Management believes that the new database will improve Oracle’s competitive position in the cloud against Amazon Web Services (“AWS”).

The company’s tech ecosystem is more than $21 billion in the past 12 months.. BYOL remains strong buoyed by new database license and support revenue, both of which were up mid-single digits.

Total hardware revenues were down 4% (3% in cc) year over year and came in at $$904 million. Services revenues decreased 5% (4% in cc) to $813 million.

Operating Details

Non-GAAP operating expenses, as percentage of revenues, decreased 10 basis points (bps) to 59.2%.

As a result, non-GAAP operating income during the reported quarter came in at $3.76 billion, up 1.3% from last year. Non-GAAP operating margin expanded 20 bps from the year-ago quarter to 40.9%.

Balance Sheet & Cash Flow

As of Aug 31, 2018, Oracle had cash & cash equivalents and marketable securities of $60.1 billion, down from $67.3 billion sequentially. Operating cash flow for the trailing four quarters was $15.5 billion, while free cash flow was $13.9 billion.

Share Repurchases & Dividends Continue

Oracle repurchased around 212 million shares worth $10 billion during the reported quarter. Over the last 12 months, the company repurchased 440 million shares. The company increased the share repurchases authorization by $12 billion during the quarter. The company also declared a quarterly dividend of 19 cents per share, payable on Oct 30, 2018.

Guidance

For the second quarter of 2019, total revenues are anticipated to grow in the range of 0-2% in constant currency.

Non-GAAP earnings are anticipated to be between 77 cents and 79 cents for the second quarter, while in constant currency non-GAAP earnings is expected to be in the range of 78-80 cents. The Zacks Consensus Estimate is pegged at 80 cents per share.

Zacks Rank & Key Picks

Currently, Oracle carries a Zacks Rank #4 (Sell).

Few better-ranked stocks in the broader technology sector are Cypress Semiconductor Corporation (CY - Free Report) , Salesforce.com Inc (CRM - Free Report) and Aspen Technology, Inc. (AZPN - Free Report) , all sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The projected earnings growth rate (3-5 years) for Cypress, Salesforce and Aspen are 16.1%, 25% and 16.5%, respectively.

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