Oracle Hits Profit Target But Revenue Disappoints
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Oracle (NASDAQ: ORCL) on Wednesday posted first-quarter profit in line with Wall Street expectations -- but investors hammered the stock after it missed revenue projections.
The database giant posted a first-quarter profit of $1.1 billion, or $0.22 a share. Excluding special charges, it earned $1.5 billion, or $0.30 a share, coming in exactly where analysts surveyed by Thomson Financial had expected.
However, the $5.1 billion in sales represented a 7 percent decline from the year-ago quarter when it earned $1.5 billion, or $0.29 a share, on sales of $5.4 billion. Analysts were forecasting first-quarter sales of between $5.25 billion and $5.3 billion.
Oracle shares took a hit immediately after the results were announced, shedding $1.17 a share, or 5 percent, to $21.49 after closing down $0.60, or 3 percent, to $22.06 in the regular trading session.
In addition to the revenue disappointment, Oracle also revealed that new software licensing sales fell 17 percent in the quarter to $1 billion.
Ahead of the earnings report, Jefferies & Co. analyst Ross MacMillan actually boosted Oracle's 12-month price target to $26.50 a share from $24, primarily on the expectation that its $7.4 billion acquisition of Sun Microsystems (NASDAQ: JAVA) will soon start paying dividends once it's finally approved by the Europe Commission -- expected for sometime in early 2010.
"We believe a combination of new product releases coupled with gradually improving corporate IT spending and accretion from the anticipated Sun acquisition makes Oracle an attractive investment," MacMillan wrote in a research note, adding that Oracle also stands to gain momentum from the release of Middleware 11g in July.
During a conference call with analysts, Oracle president Safra Catz said that once the merger receives regulatory approval the addition of Sun's hardware and software products will increase Oracle's operating income by $1.5 billion within a year.
Last quarter, Oracle topped estimates when it reported a profit of $1.9 billion, or $0.38 a share, on sales of $6.9 billion.
Oracle officials tried to explain away the lukewarm results, saying that the reduced value of foreign currencies clipped its first-quarter GAAP net income by $0.02 a share. The company said would have earned $0.32 a share on a non-GAAP basis in the quarter had the exchange rate broken its way.
CEO Larry Ellison told analysts to expect Oracle to continue whittling away market share from IBM in both the middleware and database software market.
"We expect our middleware share to grow because it's a better product [than IBM's]," he said. "We will continue to take share from IBM customers continue to move off of mainframe systems to open systems. We also have a better product."
On the bright side, Oracle's board of directors did issue a cash dividend of $0.05 a share for all shareholders of record on Oct. 14. That little windfall will be paid on Nov. 4.
Catz said the company grew non-GAAP operating margins by 570 basis points to 46 percent and reiterated the company's guidance for the second quarter.
"We are expecting non-GAAP earnings per share of between $0.35 cents a share and $0.36 cents a share, up from 34 cents a share in the year-ago quarter," she said. "Non-GAAP revenue will fall between a range of positive 2 percent to negative 1 percent from the year-ago period and new software licensing will come in between negative 10 percent and flat."
In another bright spot, Oracle managed to improve its software license update and product support sales by 11 percent to $3.1 billion and generated more than $8.5 billion in cash flow in the past year.
Despite the after-hours sell-off, Oracle shares are still up more than 23 percent in the past year, and 23 of the 31 analysts tracking the stock maintain either a "strong buy" or "buy" recommendation.
Updated to include quotes by Oracle officials in the earnings call.