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CA Tops Q2 Earnings, Lags Revenues; Reiterates FY16 View

CA Inc.CA reported second-quarter fiscal 2016 adjusted earnings (including stock-based compensation but excluding other one-time items) of 52 cents, which came a penny ahead of the Zacks Consensus Estimate.

On a GAAP basis, earnings came in at 39 cents compared with 53 cents a year ago.

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Quarter Details

CA's revenues of $1,005 million decreased 6.9% from the year-ago quarter but lagged the Zacks Consensus Estimate of $1,013 million. The year-over-year decline was primarily due to an 8% decrease in Subscription and maintenance revenues (83% of total revenue) and a 9% drop in Professional Services revenues (8%). A 13% rise in Software fees and other revenues (9%) partially made up for the decline. An unfavorable foreign exchange impact of $67 million also took a toll on quarterly revenues.

Moreover, on a segment basis, revenues from CA's Mainframe Solutions were down 9% on a year-over-year basis to $554 million. Revenues from Enterprise Solutions and Services decreased 3% and 9% year over year to $368 million and $83 million, respectively. All the segments decreased primarily due to unfavorable foreign exchange impact.

North America and International revenues were down 2% and 15%, respectively, from the year-ago period.

However, the company witnessed an 85% jump in total bookings. Per press release, "Total bookings increased primarily due to a renewal with a large system integrator in excess of $500 million and, to a lesser extent, an increase in new product sales and Mainframe Solutions renewals. Even without the large system integrator deal, there was a significant increase in total bookings."

Moving on, CA reported adjusted income from continuing operations before interest and income taxes (including stock-based compensation but excluding other one-time items) of $334 million, down 17.9% year over year. As a percentage of revenues, adjusted income from continuing operations before interest and income taxes was down 450 basis points (bps) to 33.2%, primarily due to higher operating expenses. Adjusted operating expenses increased 1.9% year over year to $523 million, while as a percentage of revenues, it increased 450 bps year over year to 52%.

CA's adjusted net income from continuing operations (excluding amortization and other gains but including stock-based compensation) was $224 million or 52 cents per share. On a GAAP basis, net income from continuing operations came in at $172 million or 39 cents per share.

CA exited the quarter with cash and cash equivalents of $2.458 billion compared with $2.816 billion in the previous quarter. The company's total long-term debt (including current portion) came in at $1.657 billion. During the quarter, the company generated $43 million in cash from operating activities.

Moreover, during the reported quarter, CA repurchased 2.3 million shares worth $65 million and paid $110 million as dividends.

Fiscal 2016 Guidance

CA updated its fiscal 2016 revenue guidance. The company continues to expect total revenue growth in the range of -1% to flat which translates to $4,040 million to $4,110 million (mid-point $4,075 million). The Zacks Consensus Estimate for fiscal 2016 revenues is pegged at $4,066 million.

CA still expects non-GAAP earnings per share from continuing operations to increase in the range of 2-5%. According to the company, "At September 30, 2015 exchange rates, this translates to reported non-GAAP diluted earnings per share from continuing operations of $2.34 to $2.40 [mid-point $2.37]." The Zacks Consensus Estimate for fiscal 2016 is pegged at $2.26.

The company continues to expect cash flow from operations to increase in the range of 2-7%. Considering the exchange rates as of Sep 30, 2015, this translates to a range of $0.97 billion to $1.02 billion.

Our Take

CA reported mixed second-quarter results wherein the bottom line beat the Zacks Consensus Estimate but the top line missed the same. The year-over-year earnings per share and revenue comparisons were not favorable either. CA's major revenue generating segments were adversely affected during the quarter, primarily due to unfavorable foreign exchange impact. The company, however, reiterated the encouraging fiscal 2016 outlook.

Furthermore, we believe that the increased efficiency offered by the wide range of products will attract customers across sectors, lending stability to the business model. We are positive about CA's increased cloud exposure. A modest cash position and share repurchase also appear encouraging.

On the other hand, increasing competition from Oracle ORCL , International Business Machines IBM and Hewlett-Packard HPQ and exposure to Europe remain the near-term headwinds.

CA 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 Nasdaq, Inc.


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

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