CA Inc (CA) Earnings And Revenues Beat Estimates In Q4

CA Inc. (NASDAQ:CA) reported encouraging fourth-quarter fiscal 2017 results. The company posted adjusted earnings (including stock-based compensation but excluding other one-time items) of 49 cents, beating the Zacks Consensus Estimate of 45 cents.

On a GAAP basis, earnings came in at 38 cents compared with 41 cents reported in the year-ago quarter.

Quarter Details

CA reported revenues of $1.012 billion, which was almost flat on a year over year basis. However, revenues surpassed the Zacks Consensus Estimate of $997 million.

Revenues from Subscription and maintenance (80% of total revenue) decreased 1.1% and revenues from Professional Services (8% of total revenue) decreased 6.1% year over year. However, Software fees and other revenues (12% of total revenue) increased 16%.

Moreover, on a segment basis, revenues from CA’s Mainframe Solutions declined 2% on a year-over-year basis to $535 million. Revenues from Enterprise Solutions increased 5% on a year-over-year basis to $400 million, whereas Services revenues decreased 6% year over year to $77 million.

Both North America and International revenues were almost flat in terms of local currency on a year-over-year basis. The company witnessed 48% increase in total bookings. Per the press release, bookings were up “primarily due to an increase in renewals and an increase in new product sales.”

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 $291 million, down 17.3% year over year. Non-GAAP operating income from continuing operations before interest and income taxes came in at $227 million compared with $252 million reported in the year-ago quarter.

As a percentage of revenues, adjusted income from continuing operations before interest and income taxes was down 614 basis points (bps) to 28.8%, primarily due to higher operating expenses. Adjusted operating expenses increased 12.8% year over year to $572 million, while as a percentage of revenues, it increased 627 bps year over year to 56.5%. The increase in operating expenses was primarily due to expenses related to Rally, Automic and Xceedium acquisitions.

CA’s adjusted net income from continuing operations (excluding amortization and other gains but including stock-based compensation) was approximately $202.4 million. On a GAAP basis, net income from continuing operations came in at $157 million.

CA exited the quarter with cash and cash equivalents of $2.771 billion compared with $2.828 billion in the previous quarter. The company’s total long-term debt (including current portion) came in at $2.791 billion. During the quarter, the company provided $419 million in cash from operating activities.

For fiscal 2017, CA repurchased 3.1 million shares worth $100 million and distributed $428 million in dividends to shareholders. Management approved a $650 million stock repurchase program as of Mar 31, 2017. The company also paid $107 million as dividends during the quarter.

Fiscal 2018 Guidance

CA provided its fiscal 2018 guidance. The company expects total revenue to increase in the range of 2–3% on a reported basis and to increase in the range of 3–4% in constant currency, which translates to $4.12–$4.17 billion at Mar 31, 2017 exchange rates. The Zacks Consensus Estimate for fiscal 2018 revenues is pegged at $4.03 billion.

CA expects non-GAAP earnings per share from continuing operations to be 3–5% on reported basis and to increase in the range of 2–4% in constant currency. According to the company, “At March 31, 2017 exchange rates, this translates to reported non-GAAP diluted earnings per share from continuing operations of $2.35 to $2.40.” The Zacks Consensus Estimate for fiscal 2018 is pegged at $2.26 per share.

The company expects non-GAAP operating margin to be approximately 36%. Non-GAAP effective tax rate is expected to be in the range of 28–29%.

The company expects cash flow from operations to be in the range of -2–2%. Considering the exchange rates as of Mar 31, 2017, this translates to the range of $1.05–$1.10 billion.

Recent Activities

During the quarter, CA announced that it has completed the acquisition of a Burlington security software company Veracode, for approximately $614 million in cash. The deal, signed in early March, was subject to customary closing conditions.

We feel, the association will strengthen the cloud computing business of CA and make it a complete service provider.

Our Take

CA reported stellar fourth-quarter results and provided an encouraging fiscal 2018 guidance.

We are optimistic about CA’s acquisition strategy, which has enhanced its IT management, software and services portfolio. Moreover, we believe that the diversity of its products and the increased efficiency offered by them will attract customers across sectors, lending stability to its business model.

CA has also adopted a “go to market” sales strategy. This brings together all the commercial functions including sales, marketing, brand management, pricing and consumer insight. The integration of the marketing functions helps to lower costs, thereby improving the bottom line.

Apart from pursuing growth through acquisitions, the company is leveraging cloud computing to enable organizations to source the best components – internal, external, private cloud, public cloud, mobile and more – to construct the most competitive business applications without wasting much time and resource.

The company is also focused on providing advanced management and security software required by organizations to take complete advantage of this evolution.

On the other hand, increasing competition from Oracle (NYSE:ORCL) , International Business Machines (NYSE:IBM) and HP Inc. (NYSE:HPQ) and exposure to Europe remain the near-term headwinds.

CA's shares returned just 1.65% in the last one year underperforming the Zacks categorized Computer-Software industry's gain of 30.88%.

CA has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here

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