Zacks_Analysts' Blog : Earnings Preview: Symantec - Analyst Blog

Symantec Corp. (SYMC) is scheduled to announce its third quarter fiscal 2012 results on January 25, 2012, and we see slight variation in the analysts’ estimates at this point.

Second Quarter Recap

Symantec reported encouraging second quarter 2012 results, with earnings per share of 39 cents beating the Zacks Consensus Estimate by 5 cents.

Symantec reported second quarter revenue of $1.68 billion, up 14.0% year over year from $1.48 billion. However, reported revenue improved 9.0% on a constant currency basis.

The results for the quarter were mainly driven by growth in enterprise security and backup, coupled with impressive performance of the company’s consumer business. Symantec continues to effectively integrate and grow its acquired assets, thereby advancing its growth prospects.

Margins increased from the year-ago period. Excluding special items and related tax adjustments, adjusted net income in the second quarter was $295.0 million or 39 cents a share compared with $266.0 million or 34 cents in the year-ago period.

The company registered cash, cash equivalents and short-term investments of $2.25 billion in the second quarter, compared with $2.96 billion in the year-ago quarter.

For the third quarter of fiscal 2012, revenue is estimated in the range of $1.700 billion to $1.715 billion, up 6.0% to 7.0% year over year. GAAP diluted earnings per share are estimated at between 25 cents and 26 cents, up 47.0% to 53.0% year over year. Non-GAAP diluted earnings per share are estimated to be between 40 and 41 cents, up 14.0% to 17.0% from the year-ago quarter.

Agreement of Analysts

Out of the 11 analysts providing estimates for the third quarter, one analyst lowered the estimate in the last 30 days, whereas no upward revisions were witnessed. Two and three analysts lowered their estimates for fiscal 2012 and 2013, respectively.

Analysts believe that the launch of Intel (INTC)-based phones may have an adverse impact on Symantec’s mobile phone security business. Intel / McAfee is expected to target the mobile opportunity, significantly increasing competition for Symantec.

A significant part of the initial integration between McAfee and Intel has occurred within the embedded business and the analysts now expect this to form the first phase of its mobile security approach. McAfee and Intel jointly announced a foray into the mobile device space, which is set to enhance competition between McAfee and Symantec.

Some analysts believe that currency will have a measurable impact on third quarter bookings and might also impact the fourth quarter guidance. Analysts are apprehensive about whether stronger demand can offset downward currency movement, which could delay the company’s growth acceleration or margin expansion strategy. Some analysts expect currency to have minimal impact on third quarter revenue with a $10 million headwind relative to the assumption in guidance.

Magnitude of Estimate Revisions

Over the past 30 days, there were no changes in the Zacks Consensus Estimate for the third quarter, while that for fiscal year 2012 went down by a penny. Again for fiscal year 2013, estimates have remained unchanged over a period of 30 days.

Our Take

The acquisition of McAfee Inc. by the semiconductor giant Intel Corp. (INTC) could fuel competition in the Mobile security software space, thus increasing investor concerns. Moreover, the current economic turmoil in Europe may also dampen the company’s business prospects in that region.

This apart, intense competition from big and small players, as well as the threat from Microsoft Corp.’s (MSFT) new Windows operating systems and the negative effect of currency fluctuation may limit margin expansion.

The company has a Zacks #4 Rank, implying a short-term Sell rating.