CA Tops Estimates As Turnaround Continues
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CA appears to be on its way to becoming a bona fide turnaround story.
The management software and services company on Thursday posted a second-quarter profit of $137 million, or 26 cents a share, on sales of $1.06 billion, thanks primarily to stronger-than-expected renewals of existing software licensing contracts.
Excluding charges related to employee stock options and other expenses, the company earned 32 cents a share in the quarter, easily surpassing analyst estimates of 26 cents a share on sales of just a smidgen over $1 billion.
More important, at least for investors who endured a precipitous dip in the company's stock price following a major restructuring program and a notorious accounting scandal, the company raised its full-year earnings and sales estimates. It predicted a broader product mix and said its revamped sales organization would pay big dividends in the years ahead.
"These results mark a significant milestone in CA's transformation," said CEO John Swainson during a conference call with analysts Thursday evening. "While there's more work to be done, this quarter's results show our restructuring efforts and focus on execution have begun to show clear benefits to both the top and bottom line. We're turning into a more efficient and agile organization."
CFO Nancy Cooper told analysts to revise their models and raised the company's sales forecast for the full fiscal year to between $4.15 billion and $4.2 billion, up from its previous target of between $4.05 billion and $4.1 billion. She also bumped up earnings estimates to between $1.06 and $1.10 a share for the year, up from the prior range of 94 cents to $1 a share.
Of all the facts and figures sprinkled throughout the earnings report, the one that captured most analysts' attention was the 46 percent surge in total bookings from the year-ago quarter to $1 billion. In the quarter, CA landed 16 separate contract renewals worth more than $10 million a piece.
However, CA said its bookings tend to get a healthy boost due to the seasonality of its renewal cycle and predicted total bookings growth for the full year will check in somewhere in the low double digits on a percentage basis.
Subscription sales improved 13 percent from the year-ago quarter to $858 million and its operating margin for the quarter was 27 percent, up from 23 percent in the second quarter of last year. Cash flow from operations, a key metric for any company but especially important for CA in the wake of its egregious accounting scandal, improved to $193 million in the quarter, up from just $6 million in the year-ago quarter.
Swainson, a 26-year IBM veteran hired in November 2004 to clean up the mess, said the company's Enterprise IT Management (EITM) portfolio of software, hardware and services will continue to drive growth and new revenue streams for the foreseeable future.
"EITM allows us to sell new products to existing and new customers and will be a key enabler that will increase our overall share of IT spending," he said. "My goal has been to focus on building world-class products. Our progress in making better products and solutions is already getting noticed by our customers and our competitors."
Swainson said the company remains "very happy with steady bookings performance" that its mainframe business enjoyed in the quarter. "Given what we've seen in financial services, mainframes' centralized approach is the best environment for security, performance and reliability." He also alluded to a new set of data center automation products, codenamed McKinley, that will be unveiled Dec. 17 during the company's annual analyst day.
Despite the rosy outlook and better-than-expected results in the second quarter, some analysts still aren't ready to give CA shares a clean bill of health.
In a research note issued Friday, Goldman Sachs analyst Sarah Friar wrote "strong bookings momentum and cost leverage are evidence the success management is having with improvements to sales operations and efficiencies."
However, Friar held back on upgrading the stock from its current "neutral" rating, because she is "waiting for positives to show up in cash flows." But did raise the stock's price target from $29 a share to $32 a share.
CA shares moved up 62 cents, or two percent, to $26.89 a share in late Friday trading.