Earnings preview: What to expect from Symantec Q4?

Security software maker Symantec Corp. (SYMC) is scheduled to report its earnings results for the fourth quarter of 2019 on Thursday after the market closes. The results will be hurt by a decline in the revenues from the Consumer Digital Safety segment, which remained strong in the fourth quarter of 2018.

The top line will be hurt by both the company’s Enterprise Security business and Consumer Digital Safety business. The Enterprise Security business will be negatively impacted by a lower mix of sales yielding up-front revenue. The Consumer Digital Safety business could be impacted by lower average direct customer count and a decline in direct average revenue per user.

The bottom line could be impacted by higher costs and expenses. The company is largely working through its restructuring, transition and transformation efforts in fiscal 2019 and this could increase the expenses for the fourth quarter. During the third quarter, the company incurred year-to-date costs of $205 million related to the efforts. These initiatives are largely coming to a close in fiscal 2019, which will have a positive impact on cash flow in fiscal 2020.

Analysts expect the company’s earnings to decrease by 15.20% to $0.39 per share and revenue to decline by 2.20% to $1.21 billion for the fourth quarter. In comparison, during the previous year quarter, Symantec posted a profit of $0.46 per share on revenue of $1.23 billion.

The company has surprised investors by beating the analysts’ expectations in the past four quarters. It is expected that Symantec could report upbeat results for the fourth quarter. Majority of the analysts recommended a “hold” rating while expecting the stock to reach $23.43 per share in the next 52 weeks.

For the third quarter, Symantec reported a 95% dip in earnings due to higher costs and expenses. The company was facing an extensive probe into accounting practices during the third quarter. Also, the previous year quarter’s results benefited from asset sales and income tax gains. Revenues were broadly flat reflecting the softness in both the leading business segments.

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For the fourth quarter, the company had expected revenues in the range of $1.19 billion to $1.22 billion and adjusted earnings in the range of $0.37 to $0.41 per share. Enterprise Security revenue was predicted to be $595 million to $615 million and Consumer Digital Safety revenue was projected to be $595 million to $605 million. Operating margin was anticipated to be about 30% and the effective tax rate was expected to be about 19.3%.

For the full year 2019, Symantec had predicted revenues in the range of $4.76 billion to $4.79 billion and earnings in the range of $1.57 to $1.61 per share. Enterprise Security revenue was expected to be $2.36 billion to $2.38 billion and Consumer Digital Safety revenue was projected to be $2.40 billion to $2.41 billion.

The company expected to start repurchases in the fourth quarter after its review of the capital allocation program. Consistent with its de-leveraging plan, Symantec planned to pre-pay its $600 million term loan due August 2019. The company also planned to continue pursuing acquisition opportunities and to continue its regular quarterly dividend of $0.75 per share.

Shares of Symantec opened higher on Wednesday but changed course to the red territory. The stock has fallen over 21% in the past year and over 1% in the past three months.

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