Autodesk's Outlook Disappoints - Analyst Blog

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Autodesk Inc. ( ADSK ) reported mixed second quarter 2013 results. The company reported non-GAAP earnings of 48 cents per share, which were ahead of the Zacks Consensus Estimate of 40 cents per share. However, the top line of $568.7 million was way behind the Zacks Consensus Estimate of $594.0 million.

Quarter Details

Revenue increased 4.1% from the year-ago quarter to $568.7 million, but was below management's guided range of $580 million to $600 million. Revenue growth slowed considerably as certain organizational realignments hampered sales executions. Sluggishness in the macroeconomic environment also led to the weaker-than-expected top line growth.

However, the year-on-year revenue growth was on account of a 2.3% increase in the license and other revenues and 7.0% increase in the maintenance revenues.

On a segmental basis, Platform Solutions and Emerging Business (PSEB) revenue jumped 10% year over year to $218 million in the reported quarter. Revenue from the Architecture, Engineering and Construction (AEC) business segment was $161 million, a mere increase of 2.0% from the previous-year quarter, while Manufacturing revenues increased 4% from the previous-year quarter to $141 million. However, revenues from the Media and Entertainment business declined 10.0% on a year-over-year basis to $49.0 million in the quarter.

On geographic basis, revenue from America (up 4% year over year) and Asia-Pacific (up 12% year on year) offset the decline in revenue from EMEA (down 1% year over year). Revenue from emerging economies, which represented 15% of the total revenue, remained flat on year-over-year basis.

Gross profit (including stock-based compensation) was $518.5 million, up 4.2% year over year. Gross margin increased 20 basis points (bps) year over year to 91.2% on the back of higher revenue base and favorable business mix.

Operating expenses (including stock-based compensation) increased 5.7% year over year to $408.1 million, primarily attributable to higher marketing & sales expenses (up 5.7% year over year) and research & development expenses (up 4.1% year over year). General and administrative expenses also increased 11.2% from the year-ago quarter. However, operating expenses, as a percentage of revenue, expanded 120 bps to 71.8% in the quarter.

Operating income (including stock-based compensation) of $110.4 million was down 1.0% year over year. Operating margin came in at 19.4% in the quarter, down 100 bps year over year, primarily due to higher-than-expected operating expenses.

Net income on non-GAAP basis came at $111.1 million or 48 cents per share, which improved from $103 million or 44 cents reported in the previous-year quarter. However, including stock based compensation and its related tax effects, net income was $81.3 million or 35 cents per share.

The company exited the second quarter with total cash and cash equivalents of $930.2 million compared with $1.07 billion in the previous quarter. Cash flow from operating activities was $107.0 million compared with $139.3 million in the prior quarter.

Outlook

For third quarter 2013, Autodesk expects revenues in the range of $550.0 million to $570.0 million.  Non-GAAP EPS is expected in the range of 40 cents to 45 cents, which excludes 18 cents related to stock-based compensation expense, 12 cents for restructuring charges and 8 cents related to amortization of acquisition related intangibles.

The company reduced its outlook for fiscal 2013. Autodesk expects revenues to increase in the range of 4%-6%, against earlier expectation of 10% growth over fiscal 2012. Autodesk expects non-GAAP operating margin to improve 150 bps (earlier expectation was 200 bps) annually in fiscal 2013.

The company also announced restructuring measures that would facilitate the shift to the cloud computing and mobile computing. The company expects to reduce workforce in the coming quarters and expects to consolidate certain leased facilities. The company expects a pre-tax charge of $50 million to $60 million for these restructuring activities in this fiscal year 2013. Autodesk expects the pre-tax charge to be $40 million to $45 million in the third quarter and the remaining amount in the fourth quarter.

Recommendation

Autodesk maintains a dominant position in the computer-aided designing market. We believe that Autodesk's expanding product portfolio, broadening industry applications and geographic reach will help it sustain longer-term growth.

The company's initiatives to shift towards cloud and mobile computing are expected to be long-term positives. The company's restructuring activities reduced the sales outlook for the fiscal year. However, we believe that this will help the company's to achieve its long-term goals to optimize its cost structure and facilitate investments in the cloud computing services portfolio. The company is also increasing its penetration in the mobile market by developing software for smartphones and Apple Inc. 's ( AAPL ) iPad. We believe that these initiatives will boost Autodesk's top-line growth going forward.

However, Autodesk's high exposure to Europe amidst the lingering financial turmoil in the region keeps us cautious. Moreover, customer concentration and increasing competition are the other headwinds.

We have a Neutral recommendation on Autodesk's shares in the long term. Currently, Autodesk has a Zacks #3 Rank, which translates into a short-term (1-3 months) 'Hold' rating.
 


 
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



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