Monday, July 2, 2012

Oracle Reports Strong Quarter at Annual Cyclical Peak

Oracle ($ORCL) reported QE May 2012 financial results on Monday, June 18

Oracle financial performance strengthened QoQ and YoY to the annual May cyclical high. Next quarter, the QE August, performance is projected to slow significantly QoQ and increase YoY.  CEO Larry Ellison said, "The development of Oracle Cloud is strategic to increasing the size and profitability of Oracle’s software business. Our Oracle Cloud SaaS business is nearly at a billion dollar revenue run rate, the same size as our engineered systems hardware business. The combination of engineered systems and the Oracle Cloud will drive Oracle’s growth in FY 2013." The Board of Directors authorized the repurchase of up to an additional $10 billion of common stock under its existing share repurchase program.

The long-term trend is clearly upwards as evidenced by the EPS chart below as each May peak is higher YoY and to a lesser extent for total revenues. The biggest performance concern is the flat to decreasing YoY growth rates in total revenues and slowing YoY growth rates in earnings per share. These are now at +11.3% and +1.3%, respectively. The biggest financial position negative has been the debt. This continues at 21% of total assets, down from a peak of 26% for the QE August 2010. Financial position continues acceptable with adequate capital, moderate debt, and reasonable liquidity.

Oracle Income Statement QE May 2012 Oracle reported total revenues of $10.92 billion, net income of $3.45 billion, and earnings per share of $0.69. From the prior quarter QE February 2012, these were +21%, +38%, and +41%. From the prior year QE May 2011, these were +1.3%, +7.5%, and +11.3%, respectively. Gross margin, operating margin, and net margin were up QoQ and YoY at 82%, 42%, and 32%, respectively. Cash flow from operations of $2.73 was very impressive and the 9th consecutive quarterly increase. The operating expense ratio of 40% was down, at the annual May cyclical low.

Oracle Balance Sheet QE May 2012 Total assets increased to a record $78.3 billion. The capital to assets ratio of 56% is historically strong. The current ratio of 51% is just above the historical average of 49%. The return on assets of +13.38% is is the 4th consecutive quarter above 13%. Total debt at 21% of total assets is just below the historical average of 22%.

Oracle Outlook QE August 2012 Oracle estimates QE August 2012 Non-GAAP EPS of $0.51 to $0.55 and analysts project the midpoint $0.53. This would be an significant -36% decrease QoQ, as expected, but a +10% increase YoY from $0.48. Oracle projects revenues YoY from -2% to +1%. Analysts project $8.66 billion, which would be a -21% QoQ and +3% YoY.


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