Oracle (ORCL) Q3 Earnings Beat Estimates, Revenues In Line

Oracle Corporation ORCL delivered modest third-quarter fiscal 2018 results. Non-GAAP earnings of 83 cents per share comfortably beat the Zacks Consensus Estimate of 72 cents. However, revenues of $9.776 billion came almost in line with the Zacks Consensus Estimate figure of $9.771 billion.

Earnings increased 20.3% from the year-ago quarter. This can primarily be attributed to 6% (2% in constant currency) growth in revenues that was higher than management’s guidance of 2-4%.

Oracle’s top-line growth benefited from the ongoing cloud-based momentum. Total cloud revenues (16% of total revenue compared with 13% in the year-ago quarter) advanced 32% (29% in constant currency) to $1.57 billion.

Moreover, total cloud and on-premise software revenues increased 8% (4% in constant currency) to $7.98 billion. We believe that the company’s growing cloud market share will continue to drive top-line growth in the foreseeable future.

Shares Decline on Soft Outlook

Shares were down 7.2% in after-hour trading following the results. In the past year, the company’s shares have gained just 15.8%, underperforming the industry’s growth of 37.9%.

The decline stemmed from the soft cloud outlook. Cloud revenues including Software as a service (SaaS), Platform as a Service (PaaS) and Infrastructure as a Service (IaaS) are expected to grow between 19% and 23% (17-21% in constant currency), much lower than 32% (29% in constant currency)  reported in the last quarter.

Cloud Drove Solid Top Line

Cloud SaaS revenues advanced a significant 33% (31% in constant currency) year over year to $1.151 billion. Cloud PaaS and IaaS revenues surged 28% (24% in constant currency) to $415 million.

On-premise software revenues (66% of total revenues compared with 67% in the year-ago quarter) increased 4% (flat at constant currency) to $6.4 billion reflecting continued higher attachment rates of software support and renewal rates.

Management stated that Fusion ERP and Fusion HCM soared 65%. Further, the next-generation autonomous database launched by Oracle, which is supported by machine learning, is now fully available and is a key catalyst for the company. Management believes that the new database will improve Oracle’s competitive position in the cloud against Amazon Web Services (“AWS”).

Software license updates and product support revenues were almost $5.027 billion, up 6% (1% in constant currency). On a combined basis, on-premise support and SaaS revenues were up 8%.

Total hardware revenues slipped 3% (down 7% at constant currency) year over year to $994 million. Services revenues decreased 2% (6% at constant currency) to $796 million.

Operating Details

Cloud Software as a service margin came in at 67% as compared with 65% reported in the year-ago quarter. Cloud PaaS and IaaS margin came in at 35% as compared with 46% reported in the year-ago quarter.

Non-GAAP operating expenses, as percentage of revenues, decreased 140 basis points (bps) to 56.1%. The decline was due to lower hardware, Software license updates and product support and research & development expenses, which were down 10%, 17% and 2%, respectively.

As a result, non-GAAP operating margin expanded 100 bps from the year-ago quarter to 44%.

Balance Sheet & Cash Flow

As of Feb 28, 2018, Oracle had cash & cash equivalents and marketable securities of $70.45 billion, down from $71.58 billion sequentially. Operating cash flow during the quarter was $15.19 billion, while free cash flow was $13.3 billion.

Share Repurchases & Dividends Continue

Oracle repurchased around 81 million shares worth $4 billion during the quarter. Over the last 12 months, the company repurchased shares worth $7 billion and paid dividends of approximately $3.2 billion. The company also declared a quarterly dividend of 19 cents per share, payable on May 1, 2018.

Guidance

For the fourth quarter, total revenues are anticipated to grow in the range of 1-3% and 0% to (2%) in constant currency.

Non-GAAP earnings are anticipated to be between 92 cents and 95 cents for the quarter, with a positive impact of couple of cents from favorable currency tailwind. The Zacks Consensus Estimate is pegged at 90 cents per share.

Zacks Rank & Key Picks

Currently, Oracle carries a Zacks Rank #3 (Hold). Few better-ranked stocks in the technology sector are NVIDIA Corp. NVDA, Applied Materials, Inc. AMAT and Paycom Software, Inc. PAYC, all sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings estimates for NVIDIA, Applied Materials and Paycom Software are currently pegged at 10.25%, 12% and 25.75%, respectively.

Today's Stocks from Zacks' Hottest Strategies

It's hard to believe, even for us at Zacks. But while the market gained +18.8% from 2016 - Q1 2017, our top stock-picking screens have returned +157.0%, +128.0%, +97.8%, +94.7%, and +90.2% respectively.

And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - Q1 2017, the composite yearly average gain for these strategies has beaten the market more than 11X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation.

See Them Free>>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Paycom Software, Inc. (PAYC) : Free Stock Analysis Report
 
Oracle Corporation (ORCL) : Free Stock Analysis Report
 
NVIDIA Corporation (NVDA) : Free Stock Analysis Report
 
Applied Materials, Inc. (AMAT) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research