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CA Inc. (CA) reported fourth quarter 2011 adjusted earnings per share (EPS) of 46 cents, in line the Zacks Consensus Estimate. Results were driven by the growing demand for the company’s products, partially offset by weakness in Europe.

Revenue

CA Inc. reported fourth quarter revenue of $1.13 billion, up 4.9% from $1.08 billion reported in the year-ago quarter, but short of the Zacks Consensus Estimate of $1.16 billion. Revenue growth can be attributed to continued focus on execution and enhanced portfolio solutions as well as new market opportunities. During the quarter, the company witnessed demand for its virtualization and service automation, service portfolio management, Nimsoft solutions, as well as mainframe capacity, which was partially offset by softness in new mainframe product demand.

In terms of business segments, Subscription and Maintenance revenue increased 3.1% year over year to $970.0 million. Professional Services revenue was $82.0 million, up 9.3% from the comparable quarter in the prior year. Software Fees and Other generated revenues of $76.0 million, up 28.8% from $59.0 million in the year-ago quarter.

On the basis of geographical segments, North America generated revenue of $689.0 million, up 5.4% from $654.0 million in the year-ago quarter. International revenue (excluding America) was $439.0 million, up 4.3% from $421.0 million reported in the year-ago quarter. Continuous weakness in Europe, Middle East and Africa affected revenue.

Bookings

Total bookings in the fourth quarter were $1.89 billion, up 33.1% from $1.42 billion reported in the prior-year period. The improvement in bookings was attributed to a five-year contract renewal of approximately $500 million with a large IT outsourcer. CA Inc. renewed a total of 21 license agreements with contract values of more than $10 million each.

Operating Results

On a GAAP basis, operating income for the fourth quarter stood at $299.0 million, up from $231.0 million in the year-ago quarter. Excluding special items, such as purchased software amortization, intangibles amortization, restructuring and other costs, and including hedging gains and losses, the non-GAAP operating income for the quarter was $337.0 million versus $256.0 million in the year-ago quarter.

Net income on a GAAP basis, for the fourth quarter was 37 cents per share versus 19 cents in the year-ago quarter. Excluding special items, such as software amortization, intangible amortization, restructuring and other and hedging gains/losses, non-GAAP net income in the fourth quarter was 46 cents per share versus 34 cents reported in the year-ago quarter.

Our calculation for net income per share excludes the effect of the company’s recently discontinued Internet Security Business.

Balance Sheet and Cash Flow

CA Inc. generated $634.0 million of cash from operating activities, compared to $631.0 million in the year-ago quarter. Capital expenditure was $19.0 million, down from $22.0 million in the year-ago quarter. Cash and cash equivalents stood at $3.12 billion, up from $2.69 billion reported in the previous quarter. At quarter end, the company had $1.55 billion in total debt outstanding and its net cash position was $1.56 billion.

Share Repurchase & Dividend

During the quarter, CA Inc. repurchased approximately 2 million shares for a total of $48.0 million.

The company also announced that its board of directors has authorized an additional share buyback of $500 million. The total available shares for repurchase were approximately $700 million as of May 2011, including approximately $200 million remaining from the board's 2010 authorization of $500 million.

Moreover, CA Inc.’s board has authorized a dividend increase of 25% for fiscal 2012. For the first quarter of 2012, the board has declared a quarterly cash dividend of 5 cents per common share, as compared to 4 cents per common share paid so far.

Guidance

For fiscal 2012, management expects revenue growth in the range of 6% to 8% at current exchange rates, which translates to revenue of $4.8 billion to $4.9 billion. Earnings on a GAAP basis are expected in the range of $1.79 to $1.86 per share, while non-GAAP earnings are expected in the range of $2.12 to $2.19.

Our Take

CA Inc. posted modest fourth quarter numbers, matching the Zacks Consensus Estimate on the bottom line, but missing on the top line. However, the product demand trend noticed in the quarter was encouraging. Keeping in mind the quarter’s revenue backlog, we find the fiscal 2012 guidance a bit conservative. We think that CA Inc.’s endeavor to return shareholder value with share buybacks and dividend increases could boost investor sentiment.

On the other hand, we are a bit concerned about intense competition in the software & cloud computing space from big players, such as International Business Machines (IBM) and Hewlett-Packard Company (HPQ). This apart, its high debt balance and European exposure may pose some challenges going forward.

Currently, CA Inc. has a Zacks #3 Rank, implying a short-term Hold rating.

 
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