Bleak 1Q Earnings for Dell - Analyst Blog
17 Mai 2013 - 10:09AM
Zacks
Dell Inc. (DELL) delivered first-quarter 2014
earnings of 21 cents per share, way below the Zacks Consensus
Estimate of 34 cents.
Revenues
The company reported revenues of $14.1 billion in the reported
quarter, down 2.2% year over year. The decline in revenues can be
attributed to the lower contribution from the Product segment.
Revenues by Segments
The company reported revenues under the following segments:
The company generated Enterprise Solutions
Group revenues of $3.1 billion, improving 10.0% on
a year-over-year basis. Under, this segment, Dell server and
networkingrevenuesincreased 16.0% compared to the year-ago quarter.
Apart from this, Dell networking continues to grow with a 24.0%
increase in revenues, which includes a 46.0% growth in the
company’s Force10 business.
Dell Services witnessed a revenue growth of
2.0% and reached $2.1 billion, supported by an 11.0% increase in
revenues from infrastructure, cloud and security services. Within
this segment, the Support and Deployment revenues moved up 2.0%,
while the Applications and Business Process services tumbled
15.0%.
Dell Software generated revenues of $295.0
million. Dell improved its software business and generated
additional sales capability and research and development.
The End User Computing segment revenues were
$8.9 billion, declining9.0% on a year-over-year
basis. Within this segment, the Dell desktop and thin-client
revenues declined 2.0% on a year-over-year basis, the mobility
revenues declined 16.0%, and peripherals and software revenues
declined 6.0%.
Operating Results
Gross margin in the reported quarter was 19.5% down from 21.3%
in the year-ago quarter.
Operating income for the quarter was $226.0 million or 1.6% of
revenues in the reported quarter, down 73.0% year over year, hurt
by the reduction in revenues and substantial increase in operating
expenses.
Reported earnings in the quarter were 7 cents per share compared
with 36 cents a share in the year-ago quarter. Excluding special
items like amortization of intangibles, severance and facility
consolidation cost, acquisition-related costs, as well as income
tax adjustments, earnings per share in the quarter came in at 21
cents versus 43 cents in the year-ago quarter.
Balance Sheet & Cash Flow
The company exited the quarter with cash and cash equivalents of
$10.9 billion, down from $12.8 billion reported in the previous
quarter. The company used $39.0 million cash in operating activity,
a considerable improvement from the $138.0 million used in the
year-ago quarter.
Guidance
As the company is looking forward to a pending merger agreement /
leveraged buyout agreement (LBO), so the management has not
provided an outlook for the second quarter of fiscal year 2014.
Dell to Go Private
Dell recently announced its decision to go
private in an LBO. Founder Michael Dell will acquire the company
for roughly $24.4 billion, much higher than the market expectation
of $23.0 billion. Dell’s shareholders will be rewarded with $13.65
per share in cash. The transaction is likely to be completed by the
second quarter of fiscal 2014.
Dell’s board is trying to finalize the deal, though some of the
shareholders are not happy about the price of the shares.
Outlook
Dell reported modest disappointing first-quarter numbers with
earnings per share below the Zacks Consensus Estimate. Both
revenues and margins were affected to a considerable extent. This
decline once again proves the point that the PC companies are
facing a technological shift that made selling laptop and desktop
machines difficult.
Moreover, the company is up against cutthroat competition, low
business growth in Europe and a restricted spending environment.
The competition faced by the company in the Small & Medium
Business (SMB) and server segments is also a concern. This is the
reason that the company has opted for privatization.
Dell has a Zacks Rank #5 (Strong Sell).
Investors can consider other stocks in the technology space such
as Pegasystems Inc. (PEGA), Progress
Software (PRGS), SAP AG (SAP) having a
Zacks Rank #1 (Strong Buy).
DELL INC (DELL): Free Stock Analysis Report
PEGASYSTEMS INC (PEGA): Free Stock Analysis Report
PROGRESS SOFTWA (PRGS): Free Stock Analysis Report
SAP AG ADR (SAP): Free Stock Analysis Report
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