MICROS Q2 Earnings Miss by a Penny - Analyst Blog

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MICROS Systems Inc. ( MCRS ) reported adjusted earnings (excluding the effect of amortization of Torex intangibles but including stock-based compensation expenses) on a proportionate tax basis of 58 cents per share for the second-quarter of fiscal 2014, missing the Zacks Consensus Estimate by a penny. However, on a year over year basis earnings increased 11.4%.

Revenues

Revenues of $345.6 million increased 6.5% year over year and came above the Zacks Consensus Estimate of $329.0 million. Year-over-year improvement in revenues was primarily attributed to improving macro condition across all its business segments specially software revenues and strong sales implementation. Also, the year-over-year expansion was driven by strong growth in terms of geography and verticals.

Segment wise, Service revenues came in at $229.7 million, up 5.1% from the year-ago quarter. Hardware revenues came in at $71.1 million, increasing 5.7% from the year-ago quarter. Software revenues increased 15.5% from the year-ago quarter to $44.7 million.

Geographically, international revenues grew 6.7% from the year-ago-quarter to $211.2 million. Revenues from the U.S. & Canada increased 6.2% from the year-ago period to $134.4 million.

Operating Results

Adjusted gross margin was 52.7%, down 31 basis points (bps) from the year-ago quarter, primarily due to higher cost and expenses related to services.

Adjusted operating expenses increased 7.7% on a year-over-year basis to $117.3 million due to increases in both selling, general and administrative expenses and research and development expenses. Moreover, as a percentage of revenues, operating expenses increased 38 basis points from the year-ago quarter to 33.9%.This in turn impacted MICROS' operating performance.

Adjusted operating income increased 2.8% from the year-ago quarter to $64.9 million while margins contracted 69 bps to 18.8%.

Adjusted net income (excluding the effect of amortization of Torex intangibles but including stock-based compensation expenses) came in at $44.5 million or 58 cents versus adjusted net income of $42.3 million or 52 cents in the year-ago quarter.

Balance Sheet and Cash Flow

MICROS ended the quarter with cash and cash equivalents and short-term investments of $627.3 million versus $595.6 million at the end of the previous quarter. Accounts receivable were $221.8 million. The company did not have any long-term debt on its balance sheet.

The company reported cash flow from operations of $101.2 million for the year ended Dec 31, 2013. Free cash flow came in at $76.6 million.

Share Repurchase

MICROS repurchased 395.0 million shares for $19.7 million during the quarter. The board of directors also approved the repurchase of an additional $200.0 million worth of shares.

Guidance

The company expects its fiscal 2014 revenues to be in the range of $1.320 billion to $1.345 (previously $1.295 billion and $1.320 billion) billion, while non-GAAP earnings per share are expected to be in the range of $2.46 to $2.50.

Our Take

MICROS' second-quarter fiscal 2014 results were a mixed bag with the top line beating the Zacks Consensus Estimate and increasing on a year-over-year basis but the bottom line missing the same. The company is expected to take care of its margins and control expenses. The company also increased its fiscal 2014 revenue guidance.

Moreover, recent collaborations with companies like Microsoft ( MFST ), Dell and Intel ( INTC ) are expected to boost MICROS' financial performance, going forward. Also, the recent acquisitions will give the company a major competitive edge and strengthen its market position.

On the flip side, the company is facing competition from the likes of Square, Revel, Groupon Inc. ( GRPN ) and NCR Corp., which provide mobile and tablet-based offerings for the hospitality sector and cannibalize the legacy POS workstations.

Hence, MICROS being a hardware-based POS solutions provider will lose out on market share. Moreover, the company's European exposure and a sluggish macro-economic environment are the other headwinds, going forward.

Currently, MICROS has a Zacks Rank #4 (Sell).



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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.



This article appears in: Investing , Business , Earnings , Stocks

Referenced Stocks: GRPN , INTC , MCRS , MFST

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