I-security specialist Symantec (Nasdaq: SYMC) reported its fiscal first-quarter 2009 numbers yesterday, and there's no doubt about it: This Motley Fool Inside Value pick's success story just keeps getting better.
Sales for the quarter zoomed faster than a galloping Trojan horse -- up 18%, as Symantec continued signing up customers near (Harris Corp (NYSE: HRS)) and far (the City of Cape Town). Free cash flow spread like a virus, up 28% to just under $356 million. And for you GAAP profit fans out there, profits more than doubled to $0.22 per share.
How'd they do that?
Well, just look at what Symantec did to its operating margins. They're up to 16.9% for the quarter, an almost 740-basis-point improvement! If Symantec can keep up this level of performance, it will not only surpass rivals like EMC (NYSE: EMC) and McAfee (NYSE: MFE) in operating profitability -- it will soon be giving even BMC (NYSE: BMC) and CA (NYSE: CA) a run for their money.
And yet, when you consider how Symantec achieved the improvement, the picture gets a bit fuzzier:
- Sales, as I already mentioned, were up 18% (great).
- Symantec accomplished this while raising marketing spending just 17% (good) ...
- and general and administrative costs a mere 8% (better).
- Meanwhile, research and development spending continues to lag sales growth badly. It rose less than 3% year over year (hmm).
Hmm
So what we have here, it seems to me, are two stories at Symantec. On the plus side, Symantec is growing its sales while controlling both marketing and overhead costs, which is great news, and would be reason to rejoice at the operating margin improvement if that's all that was happening. Unfortunately, this is now the fourth quarter in a row in which Symantec has grown its R&D budget in only the low single digits.
Meanwhile, as I mentioned in our pre-earnings Foolish Forecast, rivals like McAfee are expanding their own R&D budgets at a double-digit clip, laying the groundwork to steal away Symantec's success.
Foolish takeaway
Enjoy the bumper crop of profits at Symantec while it lasts, Fools. Because unless management starts anteing up to keep up with the competition, it won't.
What did we expect out of Symantec last quarter, and what did we get? Read all about it in:
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