Osprey Flyer: Microsoft to Announce Earnings on Thursday, October 20 (Charts) *Financial Performance Review* MSFT

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Microsoft (MSFT) will report calendar Q3 2011 financial results on Thursday, October 20

Microsoft (MSFT) Financial Performance Review

Microsoft will report calendar Q3 2011 financial results on Thursday, October 20, after market close. The conference call will be at 2:30 p.m. PT.

Microsoft financial performance charts for prior quarters have been posted on the Microsoft Financial Performance page and will be updated for this next quarterly report. The charts are also lower in this post.

The Microsoft financial performance charts are:

Microsoft Performance by the Quarters

Earnings per Share and Cash Flow per Share

Total Revenues, Operating Income, Net Income

Gross Margin, Operating Margin, Net Margin

Return on Assets

Total Revenues and Earnings per Share Growth Rates
Segment Revenues
Operating Expense Ratio

Microsoft Future and Past Financial Performance

Earnings per Share

Yahoo Finance Analysts Estimates: $0.68 avg, $0.64 low, $0.72 high, 27 analysts

Prior Quarter: $0.69

Prior Year: $0.62

Microsoft Outlook: not provided

Total Revenues

Yahoo Finance Analysts Estimates: $17.26B avg, $16.83B low, $17.83B high, 25 analysts

Prior Quarter: $17.37B

Prior Year: $16.20B

Microsoft Outlook: not provided

Prior Calendar Q2 2011 Financial Results

When Microsoft reports calendar Q3 2011, the 3 months ended September, financial results on October 20, Microsoft is expected to meet or beat various prior quarterly results. These financial results are charted on the Microsoft Financial Performance page and lower in this post. These prior quarterly financial results were:

GAAP

Total Revenues $17.37 billion

Operating Income $6.17 billion

Net Income $5.87 billion

Earnings per Share $0.69
Cash Flow per Share $0.70

Gross Profit Margin 78.65%

Operating Income Margin 35.53%

Net Income Margin 33.82%

Summary

Overall, calendar Q3 2011 is expected to exceed both prior calendar Q2 2011 and prior year calendar Q3 2010 financial results. For calendar Q3 2011, Microsoft should beat on Total Revenues, Operating Income, Net Income, Earnings per Share, and probably on Cash Flow per Share. Microsoft should meet or be close on Gross Margin, Operating Income Margin, and Net Income Margin. The detailed quarter by quarter charts are on the Microsoft Financial Performance page and below.

Microsoft Reports Solid Q2 Financial Performance: Revenues, Net Income, EPS Increase

Microsoft Summary Calendar Q2 2011 Microsoft calendar Q2 financial performance was strong and rebounded from the stalled prior calendar Q1 2011 financial results. Total revenues, operating income, net income, earnings per share, gross margin, operating margin, and net margin all increased. Financial position continues strong, very liquid, and total assets are now above $100 billion. Return on assets is an outstanding +24.20%.

Microsoft Income Statement Calendar Q2 2011 Microsoft reported total revenues of $17.37B, net income of $5.87B, and earnings per share of $0.69. From the prior calendar quarter Q1 2011, total revenues were up +5.72%, net income up +12.27%, and earnings per share up +13.11%. Compared to the prior calendar year Q2 2010, these were up +8.28%, +30.10%, and +35.29%, respectively. For calendar Q2 2011, gross margin increased QoQ to 78.65%, but is still below historical 80+% range. Operating margin increased QoQ to 35.53%. Net margin increased QoQ to 33.82%. Cash flow from operations per share dropped $0.70 from the prior Q1 2011 of $1.02. Most of the decrease in cash flow was attributable to an increase in accounts receivable.

Microsoft Balance Sheet Calendar Q2 2011 Total assets increased QoQ +9.00% to a record $108.7 billion from the prior quarter of $99.7 billion. The capital to assets ratio (total stockholders' equity divided by total assets) decreased slightly QoQ to 52.51%. The current ratio (current assets divided by total assets) is a very liquid 68.92%, which is a multi-year high. Microsoft is very liquid with strong capital and has $52.8 billion in cash reserves (cash, cash equivalents, and marketable securities). Add noncurrent investments and the reserves are $63.6 billion.

Microsoft Business Outlook Microsoft reaffirms fiscal 2012 operating expense guidance of 3% to 5% growth from 2011, or $28.0 billion to $28.6 billion.

Microsoft Financial Performance by the Quarters (Charts)

Microsoft Earnings per Share and Cash Flow per Share (Chart) Below is a chart of quarterly earnings per share and cash flow from operations per share. Current Earnings per Share of $0.69 is a +13% QoQ increase from prior calendar Q1 2011 of $0.61. The record high was calendar Q4 2010 of $0.77. Current Cash flow per Share of $0.70 dropped significantly from the prior calendar Q1 2011 of $1.02, which was a multi-year, if not all-time, high. Large changes in accounts receivable have been a major variable in the swings in cash flow per share.

Microsoft Total Revenues, Operating Income, and Net Income (Chart) Below is a chart of quarterly total revenues, quarterly operating income, and quarterly net income. Current Total Revenues of $17.37B is a +6% QoQ increase from prior calendar Q1 2011 of $16.43B. The all-time high was $19.95B in calendar Q4 2010. Current Operating Income of $6.17B is above the prior calendar Q1 2011 of $5.71B, but below the recent peak of $8.17B in calendar Q4 2010. The all-time high was $8.51B in calendar Q4 2009. Current Net Income of $5.87B is a +12% QoQ increase from prior calendar Q1 2011 of $5.23B. The recent peak was $6.63B in calendar Q4 2010 and the all-time high was $6.66B in calendar Q4 2009.

Microsoft Gross Margin, Operating Margin, and Net Margin (Chart) Below is a chart of quarterly gross margin, quarterly operating margin, and quarterly net margin. Current Gross Margin of 78.65% is a 3-quarter high. A multi-year low was set in calendar Q4 2010 of 75.78%. Microsoft had been operating in the past at the 80+% area. This has been a slight negative for Microsoft's latest 3 quarters, not maintaining an 80+% gross profit margin. Current Operating Margin of 35.53% is an increase from the prior calendar Q1 2011 of 34.75, which was a multi-year low. Microsoft had been operating in the past at the 40+% area. This also has been a slight negative for Microsoft in 3 of the past 4 quarters. Current Net Margin of 33.82 is % is an outstanding 6-quarter high. The increase is attributable to a lower average income tax rate due to a higher proportion of international sales. The multi-year peak has been 35.02% in calendar Q4 2009.

Microsoft Return on Assets (Chart) Below is a chart of annual return on average assets per quarter. The total net income for the most recent 4 quarters is divided into average assets for the most recent 4 quarters to obtain a rolling annualized ROA, an annualized return on average assets for the 12 months (4 quarters) ended. The ROA dipped during the Global Recession but has since rebounded. The current Return on Assets of 24.20% is an excellent 10-quarter high, the highest since calendar Q4 2008. This is an even more amazing ROA when taken into consideration that Microsoft's total assets have now exceeded $100 billion.

Microsoft Growth Rates (Chart) Below is a chart of the annual (YoY, Y/Y, annual change) growth rates for revenues and earnings per share. Microsoft, as with some other technology companies, has an annual cyclical high in Q4 and an annual cyclical low in Q1. Therefore, comparing YoY growth rates best reflects Microsoft's growth. Current Total Revenues Growth of +8.28% is above average, but not strong. The TRG chart average is +5.40%. Current Earnings per Share Growth of +35.29% is very strong. The EPSG chart average is +17.74%.

Microsoft Segment Revenues (Chart) Below is a chart of segment revenues by quarter. Business leads at $5.78B followed by Windows and Windows Live $4.74B and then Server and Tools $4.64B. Entertainment and Devices follows at $1.49B, Online Services at $662M, and finally Other at $60M.

Microsoft Operating Expense Ratio (Chart) Below is a chart of quarterly operating expense ratio, which is operating expenses divided by total revenues. The current Operating Expense Ratio of 43.12% is a 4-quarter high. The OER chart average of 40.53%. This indicates in the current QE June 2011 both decreased efficiency plus a lower proportion of revenues reaching the bottom line, net income and earnings per share.