A Fool asked Benjamin Graham,
"Is it greater to grow,
Or to reward investors with borrowed funds?"
Graham said
"Yes."
This attempted koan is provided as a courtesy to you, in honor of National Poetry Month.
On April 17, data storage, management, and security expert EMC (NYSE:EMC) released first-quarter earnings for the period ending March 31.
- EMC acquired data security specialist RSA last summer, but that operation contributed a mere $120 million to this quarter's revenues. In other words, most of the sales growth here is organic.
- This isn't the only IT company with a generous share buyback plan -- for example, Novell (NASDAQ:NOVL), Symantec (NASDAQ:SYMC), and Applied Materials (NASDAQ:AMAT) have all reduced their share counts by about 12% over the past year -- but it is by far the largest tech company to retire at least 10% of its shares over the past 12 months.
- Do keep in mind that some of the share concentration was paid for with borrowed money. The RSA acquisition cost $2.2 billion, but was financed with $3.45 billion in convertible senior notes -- and the company spent $946 million on buybacks the day it closed its financing.
(Figures in millions, except per-share data)
Income Statement Highlights
|
Q1 2007 |
Q1 2006 |
Change | |
|---|---|---|---|
|
Sales |
$2,975 |
$2,551 |
16.6% |
|
Net Profit |
$313 |
$272 |
14.7% |
|
EPS |
$0.15 |
$0.11 |
36.4% |
|
Diluted Shares |
2121.8 |
2400.3 |
(11.6%) |
Get back to basics with the income statement.
Margin Checkup
|
Q1 2007 |
Q1 2006 |
Change* | |
|---|---|---|---|
|
Gross Margin |
52.8% |
52.3% |
0.5 |
|
Operating Margin |
11.5% |
11.9% |
(0.4) |
|
Net Margin |
10.5% |
10.7% |
(0.2) |
Margins are the earnings engine.
Balance Sheet Highlights
|
Assets |
Q1 2007 |
Q1 2006 |
Change |
|---|---|---|---|
|
Cash + ST Invest. |
$4,284 |
$3,605 |
18.8% |
|
Accounts Rec. |
$1,542 |
$1,202 |
28.3% |
|
Inventory |
$825 |
$693 |
18.9% |
|
Liabilities |
Q1 2007 |
Q1 2006 |
Change |
|---|---|---|---|
|
Accounts Payable |
$727 |
$640 |
13.6% |
|
Long-Term Debt |
$3,450 |
$0 |
N/A |
The balance sheet reflects the company's health.
Cash Flow Highlights
|
Q1 2007 |
Q1 2006 |
Change | |
|---|---|---|---|
|
Cash From Ops. |
$809 |
$637 |
26.9% |
|
Capital Expenditures |
$171 |
$161 |
6.2% |
|
Free Cash Flow |
$638 |
$477 |
33.9% |
|
$355 |
$297 |
19.6% |
Free cash flow is a Fool's best friend.
Related Foolishness:
Symantec is a Motley Fool Inside Value pick. Secure a free 30-day trial pass today -- your authentication will give you authorization to read everything ever written for that market-beating newsletter service.
Fool by Numbers is designed to give you the raw earnings information in a timely fashion, putting all the numbers you need in one easy-to-read place. But at The Motley Fool, we believe numbers tell only part of the story, so check Fool.com for more of our in-depth discussion of what the numbers mean.
At the time of publication, Fool contributor Anders Bylund had no position in any company mentioned. Fool rules are here.
