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Symantec Beats on Q2 Earnings, Revenues Miss Estimates

Symantec CorporationSYMC reported second quarter fiscal 2016 adjusted earnings (excluding amortization, restructuring and other one-time items but including stock-based compensation) of 36 cents, which beat the Zacks Consensus Estimate of 35 cents.

Symantec Corporation - Earnings Surprise | FindTheBest

However, quarterly adjusted earnings were lower than 43 cents reported in the year-ago quarter mainly due to a weak top line.

Revenues

Symantec reported revenues of $1.498 billion, which lagged the Zacks Consensus Estimate of $1.503 billion and declined 7.4% year over year. The year-over-year decline in revenues was mainly due to unfavorable foreign currency exchange rates.

Revenues from the License segment and Content, Subscription and Maintenance segment were down 6.3% and 11.1%, respectively.

Now we come to the company's realigned business segments, which include Consumer Security, Enterprise Security and Information Management.

Symantec's Consumer Security segment revenues were down 13% year over year, primarily due to the exit of certain OEM contracts, which were not profitable, and rearrangement of certain retail channels.

Revenues from Enterprise Security were also down 5% from the year-ago quarter due to continued softness in Endpoint Management and Mail and Web Security.

Information Management revenues decreased 5% year over year, primarily due to weakness in the Backup Exec and Information Availability offerings.

Operating Results

Symantec's adjusted gross margin (excluding amortization, restructuring and other one-time items but including stock-based compensation) was down 57 basis points (bps) on a year-over-year basis to 83%, while in dollar terms, gross profit of $1.244 billion was down 7.8%, primarily due to a lower revenue base.

Adjusted operating margin (excluding amortization, restructuring and other one-time items but including stock-based compensation) was down 309 basis points (bps) on a year-over-year basis to 22.8%, primarily due to lower gross margin and higher operating expenses as a percentage of revenues (up 252 bps year over year).

Symantec reported adjusted net income (excluding amortization, restructuring and other one-time items but including stock-based compensation) of $247.8 million compared with $297.1 million reported in the year-ago quarter.

Balance Sheet & Cash Flow

Symantec exited the quarter with cash, cash equivalents and short-term investments of $3.357 billion compared with $3.884 billion in the last quarter. Long-term debt was $1.74 billion, flat quarter over quarter. During the six months ended fiscal 2016, the company generated operating cash flow of $434 million.

During the quarter, Symantec paid dividends worth $102 million. Moreover, the company spent $160 million to repurchase 8 million shares at an average price of $21.13.

Guidance

For the third quarter of fiscal 2016, the company expects revenues in the range of $890 to $920 million (mid-point $905 million). The Zacks Consensus Estimate is pegged at $1.626 billion.

Moreover, non-GAAP operating margin is expected in the range of 25.5% to 27.5%. Management expects non-GAAP earnings per share between 22 cents and 25 cents (mid-point 23.5 cents). The Zacks Consensus Estimate stands at 44 cents per share.

For fourth quarter of fiscal 2016, the company expects revenues in the range of $885 to $915 million (mid-point $900 million). The Zacks Consensus Estimate is pegged at $1.606 billion.

Moreover, non-GAAP operating margin is expected in the range of 26.5% to 28.5%. Management expects non-GAAP earnings per share between 24 cents and 27 cents (mid-point 25.5 cents). The Zacks Consensus Estimate stands at 43 cents per share.

Our Take

Symantec delivered mixed second quarter results, with its bottom line surpassing the Zacks Consensus Estimate and the top line missing the same. The year-over-year comparisons were unfavorable for both earnings and revenues. The year-over-year decline in revenues was mainly due to the negative impact of foreign currency exchange rates. Moreover, the company provided a tepid third quarter and fourth quarter guidance

Furthermore, continued investments to launch new and innovative products could impact margins in the near term. Nonetheless, investment in growth areas such as Enterprise backup, Storage Management and Security businesses are expected to drive the company's long-term prospects.

Moreover, Symantec's restructuring initiatives and share buyback plans are expected to support the bottom line.

However, smaller companies like Kaspersky are consistently launching comparable products. These, along with competition from Intel INTC and Microsoft MSFT , remain headwinds. The uncertainty over PC sales further adds to the woes.

Currently, Symantec carries a Zacks Rank #2 (Buy). Another stock in the technology sector worth considering is Amazon.com, Inc. AMZN , carrying the same Zacks Rank as Symantec.

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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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