) reported earnings of 53 cents per share in the first quarter of
2013. Including stock-based compensation of $193.0 million (4 cents
per share), earnings were 49 cents per share, which missed the
Zacks Consensus Estimate by 2 cents.
Total revenue in the reported quarter decreased 2.3% year over
year to $8.21 billion. Revenue fell slightly short of the consensus
mark and also missed the management's lower end of the guided range
of (2.0%) - 1.0% growth forecast.
The weak revenue growth was primarily due to lackluster
performance from the hardware and services segment in the quarter,
which fully offset higher software revenue.
Software revenue climbed 3.7% year over year to $5.74 billion,
primarily driven by 6.3% jump in new software license sales
(slightly better than the mid-point of the management's guided
range of 0% to 10%) and 2.7% increase in software license update
and product support revenues.
Cloud revenue was $222.0 million in the quarter. The company
added a number of new customers in both customer relationship
management ("CRM") and human capital management ("HCM") portfolios.
Barnes & Noble
Proctor & Gamble
) to name a few.
Hardware declined 19.5% year over year to $1.36 billion,
primarily due to a massive 24.3% plunge in hardware systems sales
and 11.9% decline in hardware system support revenue. However,
engineered systems (Exadata, Exalogic, Exalytics) continued to grow
at triple digit rates. Oracle added a number of new customers
during the quarter.
Services revenue declined 5.6% year over year to $1.11 billion
in the reported quarter.
Total operating expenses declined 3.7% from the year-ago quarter
to $4.80 billion. All expense items, except research &
development expense ("R&D"), declined significantly in the
quarter, reflecting stringent cost control. R&D surged 14.4%
annually in the quarter.
Operating income (excluding one-time items of $792.0 million but
including stock-based compensation expenses of $176.0 million)
remained flat year over year at $3.41 billion. Operating margin
expanded 90 basis points due to lower operating expenses.
Net income was $2.61 billion or 53 cents per share compared with
$2.47 billion or 48 cents in the year-ago period. Earnings were
within the company's guided range of 51 cents to 55 cents per
Oracle exited the first quarter with cash and marketable
securities of $31.61 billion compared with $30.67 billion at the
end of the previous quarter. GAAP operating cash flow was $13.99
billion compared with $13.74 billion in the previous quarter.
Free cash flow of $13.37 billion ($13.10 billion in the previous
quarter) was impressive providing ample liquidity to Oracle in
order to pursue acquisitions, sustain dividend payments and further
share repurchase. Oracle bought back 104.2 million shares for $3.1
billion in the quarter.
For the second quarter of 2013, Oracle expects non-GAAP earnings
in the range of 59 cents to 63 cents per share, which is
significantly higher than the year-ago level. Currently, the Zacks
Consensus Estimate is pegged at 59 cents, in line with the low end
of the guided range.
Total revenue on a non-GAAP basis is expected to grow in the
range of 0.0% to 4.0% (in $). New software license and cloud
subscription revenue growth is expected to range from 5.0% to 15%.
Hardware product revenue is expected to be in the range of (18%) to
(8%) in the reported quarter.
Oracle started fiscal 2013 on a disappointing note. However, we
believe that the company's strong product pipeline will drive
broad-based top-line growth going forward. We believe that speedy
adoption of engineered systems and cloud suites will drive
incremental top-line growth going ahead. Oracle's solid product
suite lends a competitive edge over rivals like
However, lower hardware volumes remain a concern in the near
term. As Oracle sells higher-margin products compared to its
competitors, we anticipate that a sluggish market and lower IT
spending may act as a headwind in the hardware volume going
forward. Oracle could see integration issues due to the rapid pace
of acquisitions within a short span of time.
We maintain a long-term Neutral recommendation on Oracle.
Currently, Oracle has a Zacks #3 Rank, which implies a Hold rating
on a short-term basis.
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