Symantec Still Flat

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Funny things happen in market downturns. (In case you haven't noticed, we're soaking in one.) Good news gets lost in the shuffle, and "earnings beats" can be entirely drowned in a sea of extraneous red ticker symbols.

Last week, for example, Internet security magnate Symantec (Nasdaq: SYMC) "beat by a penny," reporting non-GAAP profits of $0.26, $0.01 better than Wall Street had expected, and flat against last year's tally. Yet today, the stock price looks essentially the same as it did at the close of trading last Tuesday, pre-earnings news.

So was the news good, and just muffled by the overall gloom on Wall Street? Or was it, as the share price suggests, just ho-hum? Let's take a look -- and just for fun, let's eschew Wall Street's short-term focus on Symantec's fourth-quarter results and take a broader view of the year (this was, after all, Symantec's last quarter in its fiscal 2006.)

For the year, Symantec grew its revenues by 60.5% over fiscal 2005's numbers, thanks in large part to buying Veritas and adding those sales to the mix. Gross margins dropped significantly to 76.3% versus last year's Veritas-less 82.5% gross margin. Operating margins were decimated -- down to 6.6% from last year's 31.7%. And net margins on the $0.15 per share (diluted) that Symantec earned were a mere 3.8%, versus last year's 20.8%. Meanwhile, Symantec used its shares as currency in the Veritas acquisition, bloaating its diluted share count by 39% year over year.

But the bad news doesn't end there. Turning to the balance sheet, we see that accounts receivable climbed 135% year over year, and inventories rose 155%. Although the company failed to provide a cash flow statement with its earnings release (never fear; you'll be able to check up on the free cash flow situation once the company files its 10-K with the SEC), the balance sheet does show that cash reserves declined $341 million since this time last year, which strongly suggests negative free cash flow to this Fool.

Because Symantec is a recommendation of Motley Fool Inside Value, and because it's one of my own holdings, I'd really like to see if that cash flow statement contains something (anything, really) that reads better than the statistics cited above. But until I see it, I'm forced to conclude -- on the basis of what we've been told so far -- that Symantec is continuing to post ugly numbers, and may do so until it has fully digested Veritas.

Symantec is a Motley Fool Inside Value recommendation. To find more top-shelf stocks at bargain-bin prices, sign up today for a free 30-day guest pass .

Fool contributor Rich Smith owns shares of Symantec.