Oracle Q2 Earnings Beat, Revenues Disappoint

Oracle Corp.’s (ORCL - Analyst Report) second-quarter fiscal 2016 adjusted earnings of 59 cents easily beat the Zacks Consensus Estimate of 57 cents. However, earnings declined 9.2% from 65 cents reported in the year-ago quarter. Adverse currency translations owing to the strengthening of the U.S. dollar weighed on the company’s financials in the quarter.

Oracle Corporation (ORCL - Analyst Report) EPS BNRI & Surprise Percent - Last 5 Quarters | FindTheCompany

Revenues

Revenues were down 6.3% on a year-over-year basis to $8,996 million and also fell short of the Zacks Consensus Estimate of $9,085.8 million. However, on a constant currency basis, revenues were flat year over year.

Total cloud and on-premise software revenues dropped 4% year over year to $7,009 million, while excluding currency effects, it grew 2%. Total cloud revenues were up 26% (up 31% on constant currency basis) to $649 million while on-premise software revenues were down 7% (unchanged on currency basis) to $6,360 million.

Total hardware revenues tanked 16% year over year (down 10% on constant currency) to $1,123 million. Services revenues were also down 8% (unchanged on constant currency basis) to $861 million.

Cloud SaaS and PaaS revenues jumped 34% year over year (up 39% on constant currency) to $484 million. Cloud IaaS revenues surged 7% (up 11% on constant currency) from the year-ago quarter to $165 million.

Cloud stated that SaaS and PaaS billings were up 68% year over year.In the reported quarter, the company added 100 customers in its Human Capital Solution (HCM) and 300 in the ERP EPM division. The company said it was on track to achieve over $1.5 billion in revenues from SaaS and PaaS sales and bookings

Margins

Total operating expenses were almost flat (up 5% on constant currency) from the year-ago quarter at $6,038 million.

Non-GAAP operating margin contracted 431 bps year over year to 41%.

Liquidity

Oracle’s cash and marketable securities were $52.3 billion as of Nov 30, 2015, compared with $54.4 billion as of May 31, 2015. Operating cash flow for the trailing four months was $12.9 billion while capital expenditures were $1.6 billion. Free cash flow in the trailing four quarters was $11.3 billion.

Oracle repurchased over 86 million shares worth $3.25 billion. In the last 12 months, the company bought back $250 million shares for $10.3 billion and paid $2.5 billion as dividends.

Guidance

The company provided guidance for the third and fourth quarter of fiscal 2016 on a non-GAAP and on a constant currency basis.

For the current quarter, total revenue growth is expected in the range of flat to up 3%. Non-GAAP earnings per share are expected in the range of 63 to 66 cents. SaaS and PaaS revenue is expected to grow between 49% and 53% while IaaS is expected grow to between 3 and 7%. On premise software and cloud revenues are expected to increase in the range of 3% to 4%.

For fourth quarter, SaaS and PaaS revenue is expected to grow 65% to 69% while IaaS revenues will grow in the range of 1 to 5%. Total revenue growth is expected in the range of 1% to 3%. Non-GAAP earnings per share are expected in the 83 to 86 cents range. On premise software and cloud revenues are expected to increase in the range of 2% to 4%.

The company expects SaaS and PaaS gross margin exit rate to improve significantly in the second half and to end the fiscal in a range of 55% to 60%.

Currently, Oracle has a Zacks Rank #4 (Sell). Better-ranked stocks in the same space include Autodesk, Inc. (ADSK - Analyst Report), Citrix Systems, Inc. (CTXS - Analyst Report) and Datawatch Corporation (DWCH - Snapshot Report). All sport a Zacks Rank #1 (Strong Buy).