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CA Tops Q3 Earnings, Misses Revenues; Updates FY15 View - Analyst Blog

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CA Inc. ( CA ) reported strong third quarter fiscal 2015 earnings that beat the Zacks Consensus Estimate. The Zacks adjusted EPS of 64 cents was well ahead of the estimated 56 cents.

On a GAAP basis, reported earnings came in at 49 cents compared with 50 cents in the year-ago quarter.

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Quarter Details

CA's revenues of $1.091 billion decreased 3.3% from the year-ago quarter and lagged the Zacks Consensus Estimate of $1.096 billion. The year-over-year decline was primarily due to a 4% decline each in Subscription and maintenance revenues (82% of total revenue) and Professional Services revenues (8%). Notably, an unfavorable foreign exchange impact of $28 million also took a toll on quarterly revenues.

Moreover, on a segment basis, revenues from CA's Mainframe Solutions were down 4.2% on a year over year basis to $596 million. Revenues from Enterprise Solutions and Services decreased 1.7% and 4.3% year over year to $405 million and $90 million, respectively. Both Mainframe Solutions and Enterprise Solutions sales decreased primarily due to unfavorable foreign exchange impact. On the other hand, Services revenues were hit primarily by lower number of service deals.

North America and International revenues were down 0.4% and 8.2%, respectively, from the year-ago period. The company also witnessed a 31.8% decrease in bookings, primarily due to a year-over-year decline in renewals, which in turn were impacted by the timing of large transactions.

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 $388 million, down 6.9% year over year. As a percentage of revenues, adjusted income from continuing operations before interest and income taxes were down 141 basis points primarily due to an increase in operating expenses, as a percentage of revenues, of the same magnitude on a year-over-year basis.

CA's adjusted net income from continuing operations (excluding amortization, other gains and software development costs capitalized but including stock-based compensation) came in at $275.3 million compared with $332.5 million reported in the year-ago quarter.

On a GAAP basis, net income from continuing operations came in at $218 million, down from $225 million reported in the year-ago quarter.

CA exited the quarter with cash and cash equivalents of $2.683 billion compared with $3.193 billion in the previous quarter. The company's total long-term debt (including current portion) came in at $1.26 billion. CA generated $313 million in cash from operating activities.

Moreover, during the reported quarter, CA repurchased 2.6 million shares worth $75 million and paid $111 million as dividends.

Fiscal 2015 Guidance

CA updated its fiscal 2015 outlook. For fiscal 2015, the company expects total revenue to decline in the range of 1% to 2% ($4.26 billion to $4.30 billion). The Zacks Consensus Estimate for fiscal 2015 is pegged at $4.31 billion. CA expects non-GAAP earnings per share from continuing operations to decrease in the range of 14%-17% ($2.45 to $2.52), better than a decline of 18% to 20% guided previously. The Zacks Consensus Estimate for fiscal 2015 is pegged at $2.30 per share.

The company expects cash flow from operations to increase in the range of 5%-12%.

Our Take

CA reported mixed third-quarter results wherein the bottom line beat the Zacks Consensus Estimate but the top line missed the same. The year-over-year comparisons were not favorable either. CA's major revenue generating segments were adversely affected during the reported quarter primarily due to unfavorable foreign exchange impact. The company also provided a modest earnings outlook for fiscal 2015.

Nonetheless, we believe that the breadth of its products and the increased efficiency offered by them 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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