A month has gone by since the last earnings report for Symantec Corporation SYMC . Shares have lost about 4.3% in that time frame, underperforming the market.
Will the recent negative trend continue leading up to the stock’s next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Symantec’s Q4 Earnings Miss Estimates, Guides Weak
Symantec reported fourth-quarter fiscal 2017 results. The company’s adjusted earnings (excluding deferred revenues fair value, amortization, restructuring and other one-time items but including stock-based compensation) of $0.05 per share came significantly lower than the Zacks Consensus Estimate of $0.20. On a year-over-year basis also, the figure plummeted 68.8% mainly due to higher operating expenses.However, on a non-GAAP basis, Symantec’s earnings came in at $0.28 per share, which was at the mid-point of its own guidance range of $0.27-$0.29, but also marked a year-over-year increase of 27.3%.
Quarter in Detail
Symantec’s revenues of $1.115 billion jumped 27.7% year over year, mainly driven by strong performance at the company’s Enterprise Security segment, as well as benefit from the acquisitions of Blue Coat and LifeLock businesses. However, the figure fell short of the Zacks Consensus Estimate of $1.165 billion.
Excluding the benefit of LifeLock acquisition, the company’s revenues came in at $1.076 billion, which was below the mid-point of its guidance of $1.070-$1.090 billion (mid-point: $1.080 billion). Notably, Symantec’s guidance for the fiscal fourth quarter provided on Feb 1 did not include the contribution from the LifeLock acquisition which was completed on Feb 9. LifeLock contributed $100 million to the company’s total revenue.
Segment wise, the Consumer Security division witnessed a 21% year-over-year increase in non-GAAP revenues, while non-GAAP revenues at Enterprise Security surged 49% on a year-over-year basis.
Symantec’s adjusted gross profit of $910 million was up 24.3%, primarily attributable to a higher revenue base. However, as a percentage of revenues, gross margin contracted 220 basis points (bps) on a year-over-year basis to 81.6%, as the benefit of increased sales was more than offset by higher cost of goods sold.
Furthermore, adjusted operating income slumped 74.1% year over year to $44 million, as the benefits from increased revenues were more than offset by higher cost of goods sold and a 54.1% jump in adjusted operating expenses. Consequently, adjusted operating margin declined to 3.9% from 19.5% in the year-ago quarter.
On a non-GAAP basis, operating income grew 47% year over year to $314 million, while margin improved 220 bps to 26.7%. However, non-GAAP operating margin was lower than the company’s guidance range of 27-28%.
As per Symantec, it remains on track to realize over $550 million of cost savings by the end of fiscal 2018 through its cost-restructuring initiatives and synergies from the recently acquired businesses, Blue Coat and LifeLock. Till fiscal 2017, the company has achieved over $300 million in net cost efficiencies.
Adjusted net income for the quarter came in at $32 million compared with $105 million recorded in the year-ago quarter.
Balance Sheet Cash Flow
Symantec exited the quarter with cash, cash equivalents and short-term investments of $4.247 billion compared with $5.575 billion last quarter. Long-term debt was $6.875 billion, down from $6.358 billion in the previous quarter.
During fiscal 2017, Symantec used operating cash flow of $220 million. Moreover, it paid $222 million as dividend and repurchased $500 million worth of common stocks during the period.
The company initiated guidance for the first-quarter and fiscal 2018. For the fiscal, Symantec expects GAAP revenues in a range of $4.977-$5.077 billion (mid-point $5.02 billion) and non-GAAP revenues in the range of $5,100-$5,200 billion (mid-point $5.150 billion).
Non-GAAP operating margin is anticipated in a range of 36-37% (previously 26-28%). Non-GAAP earnings per share are projected to come between $1.75 and $1.85.
For the fiscal first quarter, Symantec anticipates GAAP and non-GAAP revenues in the range of $1.133-$1.163 billion (mid-point $1.148 billion) and $1.185-$1.215 billion (mid-point $1.20 billion), respectively.
Non-GAAP operating margin is projected in a range of 27-29%. However, on a GAAP basis it expects to report negative operating margin in the range of 8-10%. Further, management predicts reporting loss between $0.21 and $0.25 on a GAAP basis for the fiscal first quarter. However, on a non-GAAP basis, it estimates earnings between $0.28 and $0.32.
How Have Estimates Been Moving Since Then?
Analysts were quiet during the last one month period as none of them issued any earnings estimate revisions.
Symantec Corporation Price and Consensus
At this time, the stock has a subpar Growth score of ‘D’, however its Momentum is doing a lot better with a ‘A’. However, the stock was allocated a grade of ‘F’ on the value side, putting it in the bottom 20% quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of ‘D’. If you aren’t focused on one strategy, this score is the one you should be interested in.
The company’s stock is suitable solely for momentum based on our styles scores.
The stock has a Zacks Rank # 5 (Strong Sell). We are expecting a below average return from the stock in the next few months.
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