NetApp Inc. (
reported first quarter fiscal 2014 earnings of 37 cents per
share, which beat the Zacks Consensus Estimate by 3 cents.
Earnings per share excludes amortization of intangible assets,
acquisition-related expenses, non-cash interest expense as well
as investments and tax gains, but includes stock-based
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Revenues climbed 5.0% year over year, but declined 11.7%
sequentially to $1.52 billion and lagged the Zacks Consensus
Estimate of $1.54 billion. Revenues were within management's
guided range of $1.475 billion to $1.575 billion.
The year-over-year growth was primarily driven by higher branded
revenues, which jumped 9.0% to $1.35 billion and fully offset the
20.0% decline in OEM revenues.
Product revenues increased 3.7% from the year-ago quarter, but
declined 18.2% from the previous quarter to $930.8 million.
Software Entitlement & Maintenance revenues increased 4.6%
year over year and edged up 0.7% sequentially to $228.5 million
in the quarter. Service revenues surged 8.8% year over year and
increased 1.5% sequentially to $356.9 million.
Indirect revenues contributed 80.0% of the revenues in the
quarter. Regionally, Americas grew 7%, Europe, Middle-East and
Africa grew 2%, and Asia Pacific grew 3% from the year-ago
Gross margin expanded 110 basis points ("bps) from the year-ago
quarter, but contracted 30 bps from the previous quarter to
59.0%. Gross margin includes stock based compensation expenses
but excludes amortization expense.
Operating expenses as percentage of revenues decreased 240 bps to
50.4%, driven by lower sales & marketing (down 210 bps) and
research & development (down 30 bps) expenses.
Sequentially, operating expenses jumped 260 bps, primarily
attributed to higher sales & marketing (up 150 bps), research
& development (up 80 bps) and general & administrative
(up 20 bps) expenses.
Lower year-over-year increase in operating expenses and higher
gross margin base helped operating margin to expand 360 bps to
10.6% from the year-ago quarter. However, operating margin
decreased 240 bps from the previous quarter.
Net income (including stock based compensation but excluding
one-time items and related tax effect) margin increased 280 bps
from the year-ago quarter, but decreased 260 bps from the
Balance Sheet & Cash Flow
NetApp exited the quarter with cash, cash equivalents and
investments of $5.08 billion, up from $6.95 billion in the
previous quarter. Receivables were $533.3 million, up from $800.9
million a quarter ago. The company bears a long-term debt balance
of $994.8 million.
Cash generated from operations was $285.8 million compared with
$455.6 million generated in the prior quarter. Capital
expenditure in the quarter was $65.3 million, up from $63.6
million in the prior quarter.
NetApp paid back approximately $900.0 million to shareholders
through buyback ($850.0 million) and dividend payment ($51.0
million) during the quarter.
For the second quarter of 2014, NetApp expects revenues in the
range of $1.560 billion to $1.660 billion, representing
approximately 6.0% sequential growth and 5.0% year-over-year
growth at the mid-point. Branded revenues are expected to be
approximately similar to first quarter. However, OEM revenues are
expected to decline in the upcoming quarter.
For the second quarter, gross margin is expected to be
approximately 61.0%, while non-GAAP operating margin is projected
in the range of 16.0%-16.5%. Earnings are expected to be in the
range of 60 cents to 65 cents per share, up 18.0% to 27.0% from
the year-ago second quarter.
For fiscal 2014, gross margin is expected to be approximately
61.0% and operating margin is forecasted at 17.0%. Earnings are
expected to grow in the mid-teens and the company expects to
complete the $2.0 billion share repurchase by the end of this
We believe that NetApp's innovative product line-up, frequent
updates and shareholder-friendly activities will boost
profitability going forward.
Though new product refreshes, partnerships with
Cisco Systems Corp. (
, and ramp of ONTAP 8.2 are positives, we believe that uncertain
IT spending outlook and stiff competition from
EMC Corp. (
are the primary headwinds going forward.
NetApp currently carries a Zacks Rank #2 (Buy).