Foolish Forecast: Symantec Serving Up Cash

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Internet security specialist Symantec (Nasdaq: SYMC) reports its fiscal Q3 2008 earnings tomorrow afternoon. Want to know what Wall Street expects to see? Read on. Want to know what really matters? Read on a bit more.

What analysts say:

• Buy, sell, or waffle? Thirty-one analysts crowd around Symantec. Eleven of them rate the stock a buy, while 19 think it's just a hold, and one a sell.
• Revenue. On average, they're looking for 10% sales growth to $1.45 billion.
• Earnings. Profits are predicted to rise 11.5% to $0.29 per share.

What management says:
Citing "strong demand for a number of our emerging enterprise technology solutions and improving business operations," CEO John Thompson characterized Symantec's performance in the second quarter as strong, and characterized by "healthy cash flow performance." For fiscal Q3, he predicted we would see somewhere between $1.41 billion and $1.45 billion in revenue (Wall Street apparently only heard the latter number), and profits per diluted share of somewhere between $0.06 and $0.11. If that earnings range gets you to wondering how the analysts came up with $0.29, the answer is that they're focused on non-GAAP earnings (by which metric Symantec expects to earn between $0.25 and $0.30).

What management does:
Symantec's gross margin has been rising gradually over the past year, so that's good. However, operating costs are running amok, and ruining the firm's operating and net margins in the process. Selling, general, and administrative spending grew twice as fast as sales in first half of this year, up 22% year over year. Meanwhile, research and development spending is up a mere 4%. That's less good.

Margins	6/06	9/06	12/06	3/07	6/07	9/07
Gross	83.6%	83.6%	83.2%	83.2%	83.4%	83.9%
Operating	10.9%	12.8%	12.7%	11.4%	11.0%	10.8%
Net	1.2%	8.9%	9.0%	7.8%	7.5%	5.9%

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
Allow me to paraphrase the Good Book:

Ask, and it shall be given you; seek, and ye shall find; [mock], and [investor relations] shall be opened unto you: For every one that asketh receiveth; and he that seeketh findeth; and to him that [mocketh] the cash flow statements shall be opened. -- Matthew 7:7-8, Very Revised, Non-Standard Version

When last I wrote about Symantec, six months back, I chastised the company for failing to include cash flow statements in its earnings releases, saying this exhibited a lack of respect for its shareholders. I lumped the firm in with rivals Microsoft (Nasdaq: MSFT), which issues press releases devoid of financial statements (but promptly files 10-Q forms with the SEC that contain these documents), and McAfee (NYSE: MFE), which lacks even that excuse. I compared Symantec unfavorably with EMC (NYSE: EMC) and CA (NYSE: CA), both of which dutifully include all three key financial statements -- income statement, balance sheet, and cash flow statement -- in their releases.

Well, lo and behold, but what did we see when Symantec issued its earnings news for Q2? You guessed it: a shiny new cash flow statement, boasting of 33% year-over-year free cash flow growth in the first half of this year. Now that's what I call service!

In all candor, I have no reason to believe that my story in July prompted Symantec's move in October. But I'm going to applaud it nonetheless. Symantec has broken ranks with a slew of less transparent companies, and made a real effort to improve shareholder understanding of just how well its business really is doing. Thanks, guys.

For more on Symantec, read:

• Symantec Goes to M&A Rehab
• Symantec Hits a Flat Note