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Symantec Corporation reported second-quarter fiscal 2019 non-GAAP earnings of 42 cents per share that surpassed the Zacks Consensus Estimate of 33 cents and the year-ago quarter figure of 40 cents.
On a non-GAAP basis, Symantec generated revenues of $1.184 billion, which beat the Zacks Consensus Estimate of $1.144 billion but were down 7% from the year-ago quarter.
The company benefited from strong growth in Consumer Digital Safety segment. However, lower-than-expected enterprise business remained a dampener. On the conference call, management stated that “momentum loss” in Enterprise Security in the first half remained a concern.
Nevertheless, the company reiterated its outlook for fiscal 2019, which is likely to ease concerns as the company had cut the guidance in fiscal first quarter.
Quarter in Detail
Consumer Digital Security revenues in the quarter were $601 million, indicating growth of 5% from the year-ago quarter in constant currency.
However, Enterprise Security revenues of $583 million declined 17% from the year-ago period. Enterprise Security implied billings of $583 declined 3% year over year, adjusted for acquisitions and divestitures.
The company shifted its business model to a more ratable one. In the second quarter, 81% of the company’s Enterprise Security revenues were ratable under ASC 606 compared with 82% in the previous quarter. For Consumer Digital Security, ratable revenues were 98%.
Contract length was nearly 17 months during the quarter compared with 16.5 months in the preceding as well as year-ago quarter.
In the Consumer Digital Safety business, the company is witnessing improvement in ARPU on the back of successful cross-sell and improvement in retention rate for its direct customer base.
Symantec Corporation Price, Consensus and EPS Surprise
Symantec reported non-GAAP operating income of $375 million, which declined 14% from the year-ago quarter. Non-GAAP operating margin contracted 240 basis points (bps) to 31.7%.
Enterprise Security Operating margin of 15% declined from 23% in the year-ago period due to the divestiture of website security and related PKI products. Consumer Digital Safety operating margin expanded 100 bps to 48% in the quarter.
Balance Sheet & Cash Flow
Symantec exited the fiscal second quarter with cash, cash equivalents and short-term investments of $2.436 billion compared with $2.324 billion in the prior quarter. The company ended the quarter with long-term debt of $4.442, down from $5.032 billion in the previous quarter.
During the quarter, Symantec generated operating cash flow of $240 million compared with $334 million in the prior quarter. Free cash flow was $189 million.
Outlook
For fiscal 2019, Symantec continues to expect non-GAAP revenues in the range of $4.670-$4.790 billion.
Non-GAAP operating margin is maintained at 30%. Non-GAAP earnings per share are still anticipated to be in the range of $1.47 to $1.57.
For the third quarter of fiscal 2019, Symantec anticipates non-GAAP revenues in the range of $1.160-$1.190 billion.
Non-GAAP operating margin is projected in the range of 30%. Further, management estimates earnings between 37 cents and 41 cents on a non-GAAP basis.
Management notes third and fourth quarters to be seasonally biggest for the Enterprise business. However, the Equifax breach in the year-ago quarter is expected to lead to tough year-over-year comparisons for the company’s Consumer Digital Safety segment. Management expects the consumer business to grow 1% in the fiscal third quarter.
Further, management notes that revenue growth in both Enterprise Security and Consumer Digital Safety segments coupled with cost reduction initiatives undertaken during the remainder of fiscal year 2019 will have a positive impact on operating margin in fiscal 2020.
Zacks Rank and Stocks to Consider
Symantec currently carries a Zacks Rank #4 (Sell).
Long-term earnings growth for Intel, Twitter and CACI International is projected to be 8.4%, 22.1% and 10%, respectively.
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Symantec (SYMC) Q2 Earnings & Revenues Surpass Estimates
Symantec Corporation reported second-quarter fiscal 2019 non-GAAP earnings of 42 cents per share that surpassed the Zacks Consensus Estimate of 33 cents and the year-ago quarter figure of 40 cents.
On a non-GAAP basis, Symantec generated revenues of $1.184 billion, which beat the Zacks Consensus Estimate of $1.144 billion but were down 7% from the year-ago quarter.
The company benefited from strong growth in Consumer Digital Safety segment. However, lower-than-expected enterprise business remained a dampener. On the conference call, management stated that “momentum loss” in Enterprise Security in the first half remained a concern.
Nevertheless, the company reiterated its outlook for fiscal 2019, which is likely to ease concerns as the company had cut the guidance in fiscal first quarter.
Quarter in Detail
Consumer Digital Security revenues in the quarter were $601 million, indicating growth of 5% from the year-ago quarter in constant currency.
However, Enterprise Security revenues of $583 million declined 17% from the year-ago period. Enterprise Security implied billings of $583 declined 3% year over year, adjusted for acquisitions and divestitures.
The company shifted its business model to a more ratable one. In the second quarter, 81% of the company’s Enterprise Security revenues were ratable under ASC 606 compared with 82% in the previous quarter. For Consumer Digital Security, ratable revenues were 98%.
Contract length was nearly 17 months during the quarter compared with 16.5 months in the preceding as well as year-ago quarter.
In the Consumer Digital Safety business, the company is witnessing improvement in ARPU on the back of successful cross-sell and improvement in retention rate for its direct customer base.
Symantec Corporation Price, Consensus and EPS Surprise
Symantec Corporation Price, Consensus and EPS Surprise | Symantec Corporation Quote
Margins
Symantec reported non-GAAP operating income of $375 million, which declined 14% from the year-ago quarter. Non-GAAP operating margin contracted 240 basis points (bps) to 31.7%.
Enterprise Security Operating margin of 15% declined from 23% in the year-ago period due to the divestiture of website security and related PKI products. Consumer Digital Safety operating margin expanded 100 bps to 48% in the quarter.
Balance Sheet & Cash Flow
Symantec exited the fiscal second quarter with cash, cash equivalents and short-term investments of $2.436 billion compared with $2.324 billion in the prior quarter. The company ended the quarter with long-term debt of $4.442, down from $5.032 billion in the previous quarter.
During the quarter, Symantec generated operating cash flow of $240 million compared with $334 million in the prior quarter. Free cash flow was $189 million.
Outlook
For fiscal 2019, Symantec continues to expect non-GAAP revenues in the range of $4.670-$4.790 billion.
Non-GAAP operating margin is maintained at 30%. Non-GAAP earnings per share are still anticipated to be in the range of $1.47 to $1.57.
For the third quarter of fiscal 2019, Symantec anticipates non-GAAP revenues in the range of $1.160-$1.190 billion.
Non-GAAP operating margin is projected in the range of 30%. Further, management estimates earnings between 37 cents and 41 cents on a non-GAAP basis.
Management notes third and fourth quarters to be seasonally biggest for the Enterprise business. However, the Equifax breach in the year-ago quarter is expected to lead to tough year-over-year comparisons for the company’s Consumer Digital Safety segment. Management expects the consumer business to grow 1% in the fiscal third quarter.
Further, management notes that revenue growth in both Enterprise Security and Consumer Digital Safety segments coupled with cost reduction initiatives undertaken during the remainder of fiscal year 2019 will have a positive impact on operating margin in fiscal 2020.
Zacks Rank and Stocks to Consider
Symantec currently carries a Zacks Rank #4 (Sell).
A few better-ranked stocks in the broader technology sector are Intel Corporation (INTC - Free Report) , Twitter, Inc. and CACI International (CACI - Free Report) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Long-term earnings growth for Intel, Twitter and CACI International is projected to be 8.4%, 22.1% and 10%, respectively.
Today's Stocks from Zacks' Hottest Strategies
It's hard to believe, even for us at Zacks. But while the market gained +21.9% in 2017, our top stock-picking screens have returned +115.0%, +109.3%, +104.9%, +98.6%, and +67.1%.
And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - 2017, the composite yearly average gain for these strategies has beaten the market more than 19X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation.
See Them Free>>