Bleak 1Q Earnings for Dell
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).
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