AMZN

Symantec Misses on Q1 Earnings & Revenues, Shares Fall

Shares of Symantec CorporationSYMC went down nearly 7% yesterday after the company reported dismal first-quarter fiscal 2016 results. Also, unfavorable year-over-year comparisons on both counts and tepid second-quarter revenue guidance impacted the share price.

The company reported adjusted earnings (excluding amortization, restructuring and other one-time items but including stock-based compensation) of 34 cents, which missed the Zacks Consensus Estimate of 37 cents. Moreover, quarterly adjusted earnings were lower than 41 cents reported in the year-ago quarter mainly due to a weak top line.

Symantec Corporation - Earnings Surprise | FindTheBest

Revenues

Symantec reported revenues of $1.499 billion, which lagged the Zacks Consensus Estimate of $1.542 billion and declined 13.6% year over year. The year-over-year decline in revenues was mainly due to unfavorable foreign currency exchange rates and an additional week in the first quarter of fiscal 2015.

Revenues from both License segment and Content, Subscription and Maintenance segment were down 9% and 14%, 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 19% 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 13% from the year-ago quarter due to continued softness in Endpoint Management and Mail and Web Security.

Information Management revenues decreased 10% 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 70 basis points (bps) on a year-over-year basis to 82.2%, while in dollar terms, gross profit of $1.232 billion was down 14.4%, primarily due to a lower revenue base.

Adjusted operating margin (excluding amortization, restructuring and other one-time items but including stock-based compensation) was approximately flat on a year-over-year basis and came in at 22.1%, primarily due to lower gross margin, which was offset by lower operating expenses as a percentage of revenues (down 70 bps year over year).

Symantec reported adjusted net income (excluding amortization, restructuring and other one-time items but including stock-based compensation) of $236.9 million compared with $298.5 million reported in the year-ago quarter.

Balance Sheet & Cash Flow

Symantec exited the quarter with cash, cash equivalents and short-term investments of $3.884 billion compared with $3.891 billion in the last quarter. Long-term debt was $1.74 billion compared with $1.75 billion reported in the previous quarter. During the first quarter of fiscal 2016, the company generated operating cash flow of $300 million.

During the quarter, Symantec paid dividends worth $103 million. Moreover, the company spent $90 million to repurchase 4 million shares at an average price of $24.39.

Guidance

For the second quarter of fiscal 2016, the company expects revenues in the range of $1.485 to $1.525 billion (mid-point $1.505 billion). The Zacks Consensus Estimate is pegged at $1.536 billion.

Moreover, non-GAAP operating margin is expected in the range of 26% to 28%. Management expects non-GAAP earnings per share between 40 cents and 43 cents (mid-point 41.5 cents). The Zacks Consensus Estimate stands at 39 cents per share.

Symantec expects 2016 revenues in a range of $6.210 to $6.350 billion. The Zacks Consensus Estimate is pegged at $6.255 billion.

For fiscal 2016, the company expects non-GAAP operating margin within 29% to 30%. Moreover, non-GAAP earnings per share are now expected in the range of $1.80 to $1.90. The Zacks Consensus Estimate is pegged at $1.61 per share.

Our Take

Symantec delivered lower-than-expected first-quarter results. 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 second quarter revenue 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 #4 (Sell). A better-ranked stock in the technology sector is Amazon.com, Inc AMZN ,sporting a Zacks Rank #1 (Strong Buy).

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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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