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Oracle Easily Tops 2Q Profit Estimates

Oracle on Wednesday topped analysts' estimates in its second quarter, posting a profit of $2 billion, or $0.39 a share, excluding special charges, on sales of $5.9 billion.

A survey of analysts conducted by Thomson Reuters pegged the software giant for a profit of $0.36 per share on sales of $5.7 billion.

The $5.9 billion in sales represents a 3 percent increase from the year-ago quarter when it earned $1.7 billion on sales of $5.7 billion.

"We delivered results which were substantially better than we expected on both the top and bottom line, growing non-GAAP operating margins by 280 basis points to 49 percent, the highest Q2 non-GAAP operating margin in our history," said Oracle CFO Jeff Epstein said. "Our solid top-line growth, coupled with disciplined expense management, was key in generating $8.4 billion of free cash flow over the last twelve months."

Including special charges and other one-time items, Oracle pocketed $1.5 billion, or $0.29 a share.

On Wednesday, FBR Capital Markets analyst David Hilal predicted the upside surprise in a research note in which he reiterated his 12-month price target of $25 a share.

"We believe Oracle closed out its quarter well," he said in the note. In the same note, he also predicted a 5 percent dip in new software licensing revenue, which would much improved from the 17 percent decline Oracle reported last quarter.

But Oracle managed to best even that forecast, achieving a 2 percent increase in new software revenue -- growing to $1.7 billion -- and far better than 10-percent decline it had originally predicted.

Oracle President Safra Catz took full advantage of the opportunity to gloat following the company's unexpectedly solid second quarter.

"We had another excellent quarter," she said during a conference call with analysts. "We beat the high of our total revenue projects, the high end of EPS and the high end of new software licensing revenue."

"Strength in the quarter was across all product lines and not dependent on any unusually large deals," she added. "We grew faster than SAP in every region, clearly taking share away from them and [demonstrating] that they've essentially come apart at the seams."

Catz said Oracle is now projecting third-quarter new software licensing to come in between a 1 percent decline and 9 percent growth, based on constant currency exchange rates. She also gave guidance of total revenue growth of between 4 percent and 7 percent compared to the year-ago quarter.

"We believe this guidance is realistic as our pipelines continue to be very strong," she said. Catz told analysts to expect earnings per share between $0.36 and $0.38 a share, up from $0.35 a share in the same quarter last year.

Last quarter, Oracle hit analysts' profit estimates of $1.5 billion, or $0.30 a share, but the $5.1 billion in sales it recorded were slightly below the consensus range of between $5.25 billion and $5.3 billion.

Shares of ORCL were off $0.10 today to close at $23.02 ahead of the earnings report. But they quickly rallied up $0.73, or 3 percent, to $23.85 in after-hours trading.

Oracle and its shareholders also received some good news earlier this week after European regulators indicted they will finally approve its long-delayed merger with Sun Microsystems now that Oracle has assuaged their concerns about the stewardship of the open source MySQL database.

"We expect the European Commission to unconditionally clear the acquisition of Sun in January," Catz added. She also reiterated that Oracle expects a $1.5 billion boost to its operating income in the first year once the deal closes.

"I want to thank all of our customers for the overwhelming support they have given us during this process," she said.

CEO Larry Ellison told investors the Sun acquisition will position Oracle to offer "a complete, high-end private cloud offering processing, storage and networking" along with business applications that will help it "differentiate us from IBM, HP and Dell to compete very effectively."

"We recognize that Sun really doesn't have the volume to compete in the high-volume, low-margin business that Dell and HP are so good at, so we're going to avoid it," he added.

Investors received even more good news Thursday when Oracle's board of directors announced it will pay out a cash dividend of $0.05 a share to all shareholders of record as of the close of business on Jan. 19, 2010.

Twenty-five of the 34 analysts covering Oracle's stock maintain either a "buy" or "strong buy" recommendation.

For the fiscal year, analysts are looking for a profit of $1.53 a share on sales of $23.6 billion.