) reported fourth quarter fiscal 2013 adjusted earnings per share
(EPS) of 55 cents, which inched past the Zacks Consensus Estimate
of 54 cents. Adjusted EPS excludes amortization of intangible
assets, acquisition-related expenses, non-cash interest expense
as well as investments and tax gains but includes stock-based
CISCO SYSTEMS (CSCO): Free Stock Analysis
EMC CORP -MASS (EMC): Free Stock Analysis
NETAPP INC (NTAP): Free Stock Analysis Report
VMWARE INC-A (VMW): Free Stock Analysis
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NetApp reported fourth-quarter revenues of $1.72 billion, up 0.8%
from $1.70 billion in the year-ago quarter. Revenues came at the
lower end of the company's guidance range of $1.70-$1.80 billion
and below the Zacks Consensus Estimate of $1.75 billion.
Year-over-year revenue growth was driven by growing demand for
ONTAP suite, higher sales of flash storage devices (led by
growing demand for smartphones and tablets) and double-digit
growth in branded products, which was offset by lower spending
from the U.S. military and intelligence agencies due to
Product revenues were $1.14 billion in the quarter, down 2.3%
year over year and accounted for about 66.3% of the total
revenue. Growth in Branded revenues was offset by weak OEM
Software Entitlement & Maintenance revenues were $227.0
million, up 6.8% from $212.5 million in the year-ago quarter. The
segment's revenues represented around 13.2% of the total revenue.
Service revenues were $351.7 million, up 8.2% from $324.9 million
reported in the year-ago quarter. The segment accounted for 20.5%
of the total revenue.
NetApp reported gross profit of $1.03 billion, which increased
3.7% year over year. Gross margin grew 170 basis points (bps)
year over year to 60.1%, mainly due to product mix.
Total operating expenses increased 7.0% from the year-ago quarter
to $827.8 million. Operating income decreased 7.7% from the
year-ago quarter to $204.4 million. Operating margin was 11.9%,
down from 13.0% in the year-ago quarter.
Net income on a GAAP basis was $173.8 million or 47 cents per
share compared with $180.7 million or 47 cents in the prior-year
quarter. The quarter's result was toward the higher end of the
company's guided range of 43-48 cents.
Excluding the above-mentioned special items but including
stock-based compensation, adjusted net income was 55 cents per
share, flat year over year.
Balance Sheet & Cash Flow
NetApp exited the quarter with cash, cash equivalents and
investments of $6.95 billion, up from $6.72 billion in the
previous quarter. Receivables were $800.9 million, up from $633.8
million a quarter ago. Inventories decreased $33.4 million from
the prior quarter to $139.5 million. The company bears a
long-term debt balance of $994.6 million.
Cash generated from operations was $455.6 million compared with
$365.1 million generated in the prior quarter. Capital
expenditure in the quarter was $63.6 million, down from $110.7
million in the prior quarter.
Share Repurchase & Dividend
The company plans to increase its current stock buyback
authorization by an additional $1.6 billion. Currently, shares
outstanding under the plan amount to $1.4 billion. NetApp will
buyback roughly $2.0 billion of common stock within the next 12
months, of which roughly $1.0 billion will be bought back within
the coming 120 days.
During the fourth quarter, NetApp repurchased $180.0 million
worth of shares.
NetApp also initiated a dividend payout of 15 cents per share.
The first quarterly dividend will be paid on Jul 23. The company
stated that the rate of dividend will increase over time.
For the first quarter of 2014, NetApp expects revenues in the
range of $1.475 billion to $1.575 billion, representing roughly
11.2% sequential decline and 5.6% year-over-year growth. The
sequential decline reflects seasonality, continued reduction in
OEM revenues and a soft IT spending environment.
Non-GAAP gross margin is expected to be roughly 61.0%, while
non-GAAP operating margin is projected in the range of
13.5%-14.0%. GAAP EPS is expected to range between 13 cents and
18 cents, while non-GAAP EPS is expected between 45 cents and 50
cents. The company estimates shares outstanding to be
approximately 367 million and a tax rate of 18.0%. The Zacks
Consensus Estimate for the first quarter 2014 is 37 cents.
NetApp also plans to reduce headcount by 900 positions. For this,
the company will bear a pre-tax charge of roughly $50.0-$60.0
million for employee severance and other restructuring
The quarter's results were mixed with the bottom line beating the
Zacks Consensus Estimate and the top line missing it. Favorable
product mix and cost optimization measures helped in margin
expansion. Keeping in mind the ongoing macro uncertainty caused
by the European debt crisis and federal budget cuts, management
guided a cautious first quarter.
We believe that the stock repurchase program and initiation of
dividend reflects a good cash position and hence will be
attractive for investors.
Though new product refreshes, association with
Cisco Systems Corp.
), and ramp of ONTAP 8.1 are positives, we believe that uncertain
IT spending patterns and growth prospects of its archrival
) may pose serious threats.
NetApp currently carries a Zacks Rank #3 (Hold).