Sunday, March 25, 2012

Oracle Financial Performance Strengthens, Next Quarter Projected Stronger

Oracle Summary QE February 2012 Oracle financial performance strengthened QoQ and YoY. The QE February is typically an improvement from the prior QE November, with the next QE May the annual cyclical peak. Oracle's outlook for the next quarter, the QE May, ranges from flat to a solid increase YoY. The next quarter needs to be a breakout quarter or the stock may languish subsequently. The biggest performance concern is the flat to decreasing YoY growth rates in total revenues and flat growth rates in earnings per share. These are now at +3% and +20%, respectively. The biggest financial position negative has been the debt. This continues at 20% of total assets, down from a peak of 26% for the QE August 2010. Financial position continues as adequate capital with moderate debt and reasonable liquidity.

Oracle Income Statement QE February 2012 Oracle reported total revenues of $9.04 billion, net income of $2.50 billion, and earnings per share of $0.49. From the prior quarter QE November 2011, total revenues were +3%, net income +14%, and earnings per share +14%. From the prior year QE February 2011, these were +3%, +18%, and +20%, respectively. Gross margin (see note below), operating margin, and net margin were up QoQ and YoY at 79%, 37%, and 28%, respectively. Cash flow from operations of $1.91 was down QoQ and up YoY. The operating expense ratio (operating expenses divided by total revenues) of 42% was slightly down QoQ and YoY.

Oracle Balance Sheet QE February 2012 Oracle's total assets increased +2% QoQ to $74.36 billion. The capital to assets ratio of 58% is a multi-year high. The current ratio of 50% is about at the historical average. The return on assets of +13.44% is historically very strong, a multi-year high, and has increased for 6 consecutive quarters. Total debt is flat QoQ at 20% of total assets.

Oracle Outlook QE May 2012 Oracle estimates QE May 2012 GAAP earnings per share of $0.62 to $0.67 and Non-GAAP EPS of $0.76 to $0.81. This would be an increase QoQ and flat to an increase YoY for both GAAP and non-GAAP.

Oracle Financial Performance by the Quarters

Oracle Earnings Per Share Current Earnings per Share of $0.49 are +14% QoQ and +20% YoY. The QE February is a typical rebound from the prior QE November. The QE May is the strongest quarter and the QE August is the weakest quarter on an annual cycle. These peaks and lows indicate an annual cyclical nature to Oracle's business. The chart high has been $0.62 for the QE May 2011 and the chart low has been $0.22 for QE August 2009. The EPS chart average is $0.36.

Oracle Cash Flow per Share Current Cash Flow per Share of $1.91 is a decrease QoQ, an increase YoY, and has increased 5 of the past 6 quarters QoQ. The CFS chart average is $1.84.

Oracle Total Revenues and Net Income Current Total Revenues of $9.04B are +3% QoQ and +3% YoY. Total Revenues have increased 5 of the past 6 quarters QoQ. Current Net Income of $2.50B is +14% QoQ and +18% YoY. Net Income has increased 5 of the past 6 quarters QoQ.

Oracle Gross Margin and Net Margin Current Gross Margin (see note below) of 78.89% is up QoQ, up YoY, and above the chart average of 77.27%. Current Net Margin of 27.64% is also up QoQ, up YoY, and above the chart average of 23.66%. [Note: Oracle does not report a gross profit, but includes some allocated cost of revenues in operating expenses as line items. For this analysis, these allocated cost of revenues have been reclassified as cost of revenues and operating expenses are therefore the commonly reported line items of most companies. The gross profit reviewed is not a true gross profit. Operating margin and net margin are not affected by this reclassification.]

Oracle Return on Assets Current Return on Assets of +13.44% is a multi-quarter high, relatively very strong, and has increased 6 consecutive quarters. This indicates an increasing effectiveness in the deployment of assets. The ROA chart average is 12.17%.

Oracle Growth Rates YoY This is the concern about Oracle: declining YoY revenues and YoY earnings per share growth. Current Total Revenues Growth YoY of +3.14% is just above the prior quarter multi-year low and well below the TRG chart average of +22.28%. Current Earnings per Share Growth YoY of +19.51% is an improvement QoQ, a drop YoY, below the EPS chart average of +25.79%.

Oracle Segment Revenues Current Software of $6.43B is the primary driver of revenues and solidly increased QoQ. Current Hardware of $1.47B dipped QoQ and current Service of $1.14B also dipped QoQ.

Oracle Regional Revenues Current Americas of $4.71B is the primary driver of revenues and is up QoQ and YoY. Current Europe, Middle East, Africa of $2.79B is flat QoQ and YoY. Current Asia Pacific of $1.55B slightly increased QoQ and YoY.

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