Enterprise software companies are mostly prosaic -- but not CA
But yesterday's second-quarter earnings report gave investors much-needed good news. The problem is that it's not enough to last.
In the quarter, revenues edged up 3% to $956 million. Earnings plunged 64% to $35 million or $0.06 per share. Adjusting for non-cash items (such as stock option expenses), the company earned $104 million or $0.17 per share.
CA is a sprawling software company, with hundreds of products that provide security, management of information technology (IT) assets, storage, and so on. Much of the product line has been the result of a myriad of acquisitions over the past 20 years.
Now management is unleashing yet another major restructuring. The goal is to slash roughly 10%, or 1,700 employees from the payroll over the next year. There will also be a $1 billion tender offer for stock from the public this week. In fact, the company plans for another $1 billion purchase by the end of the year.
Yet CA has serious problems. First, CEO John Swainson must deal with a variety of distractions. On the conference call, he spent a chunk of time talking about how he's installed a new management team: Nancy Cooper (CFO), Jim Bryant (chief administrative officer), and Al Nugent (CTO).
There's also a new problem: irregularities with option grants from 1996 to 2002. This is something that has engulfed the tech industry, with some cases resulting in criminal charges.
It's difficult for a company to grow in the midst of a restructuring, big management changes, and regulatory issues. These problems also provide an opportunity for competitors like Oracle
Interestingly enough, with $2 billion going to share buybacks, the company will be piling on more debt and hampering its ability to buy large companies. In other words, don't expect acquisitions to move the needle. In fact, with industry consolidation, subdued IT spending, and increased competition, it looks nearly impossible for CA to grow much from here.
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Fool contributor Tom Taulli does not own shares of companies mentioned in this article.