CA shows growth and profit, but reins in Q3 estimates

Computer Associates reported a 9% increase in its second-quarter revenue compared to last year's, as it completed a profitable quarter that CEO John Swainson called a solid sign of the work CA's new management team is doing to strengthen the battered company.

"We have aligned the business to our growth opportunities, put programs in place to encourage our sales force to become better partners to customers and made a number of key acquisitions to strengthen our product portfolio," Swainson said in a written statement. "We've also made good progress in transforming CA during the first half of the fiscal year."

CA's revenue for the quarter, which ended Sept. 30, was $942 million, up from $865 million in last year's second quarter. The company fell short of the $945 million consensus estimate of financial analysts polled by Thomson First Call. CA's operating earnings per share were 24 cents, in line with analysts' consensus estimate.

Several acquisitions helped CA increase its revenue, such as its July purchase of IT governance software maker Niku and its June buy of network management technology developer Concord Communications.

CA, based in Islandia, N.Y., had income of $41 million for the quarter, up from a $98 million loss last year. New business bookings fell 11% during the quarter, to $665 million, but CA called the drop-off an anticipated effect of its decision to decrease early contract renewals. The company has reworked its sales staff compensation this year to reward new business sales more than renewals of existing contracts.

CA reined in estimates a bit for the rest of its 2006 fiscal year, which ends March 31. For the current quarter, CA said it anticipates operating earnings per share of 24 cents, a penny less than the analysts' current consensus estimate, and revenue of $950 million to $980 million. Thomson First Call's current consensus called for $980 million in revenue. CA similarly tugged its full-year revenue estimates down, setting its own forecast at revenue of $3.8 billion to $3.85 billion. Thomson First Call's consensus had a $3.852 billion estimate.

In a conference call with analysts, Swainson cast the shortfalls as a minor concern to a management team focused on long-term rebuilding. "As we go through this transition, it's not going to be as pretty as Wall Street would perhaps like it," he said. "You're going to see lumpiness in the results."

Swainson joined CA in late 2004 after an accounting scandal forced out the company's former CEO, Sanjay Kumar, and much of his management team. CA "is still not performing as well as it could," but is making progress in reforming its internal operations and rebuilding customer relationships, Swainson said on the call.

"Changing perceptions one customer at a time is a lengthy and time-consuming process, but changing customer perceptions is vital to CA's growth strategy," he said.

CA is on the verge of a major product release, Unicenter 11. The new version marks Unicenter's first major overhaul in four years, and has received more testing than any other product in CA's history, Swainson said. Now in beta testing with 100 CA customers, the software will ship later this quarter. It is expected to receive a prominent launch at CA World, the user conference that will be held next month in Las Vegas.

The IDG News Service is a Network World affiliate.