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Computer Associates swings to profit

Posted by iMark - 2005-10-26

Business software maker Computer Associates International Inc. on Tuesday said it returned to quarterly profit from a year-earlier loss as acquisitions and changes by new management boosted sales.
The company is recovering from what Chief Executive John Swainson on Tuesday termed "a near-death experience." A former IBM software executive, Swainson took the helm of the company in November 2004. His predecessor, Sanjay Kumar, was indicted in September 2004 amid a government probe into accounting irregularities.

For its second fiscal quarter, the company reported net income of $41 million, or 7 cents per share, compared with a loss of $98 million, or 17 cents per share, a year earlier.

Excluding a charge related to severance pay for job cuts announced in July, the company posted earnings per share of 24 cents, in line with the average analyst estimate as compiled by Reuters Estimates.

Sales rose to $942 million from $865 million.

In the most recent quarter the company, which focuses on systems that manage large technology networks, said billings, a key measure for future sales, rose a record 14 percent to $975 million.

That was above the $880 million expected by Legg Mason analyst Todd Weller. "It was a nice bounceback," he said.

First-quarter billings had disappointed investors. At the time, the company cited kinks in reorganizing the company.

That included restructuring the sales force and the company's development and service groups into business units focused on specific product areas such as technology systems management, security and storage.

The company also hired new senior managers and changed its incentives for sales representatives. The top bonuses are now given to those who sign new contracts or sell new products to existing customers. Previously sales reps were rewarded for renewing contracts.

Also as a result of the government's probe, the company last week restated its results for fiscal 2000 and 2001.

While the company's performance was strong in the most recent quarter, more hiccups may come in future periods, Swainson said during the conference call.

"As we go through this transformation, it's not going to be as pretty as Wall Street would perhaps like," he said. "It's not going to be smooth."

One example: the recent strengthening of the U.S. dollar will reduce full-year revenue by about $80 million from previous forecasts.

The company now expects fiscal 2006 revenue of $3.8 billion to $3.85 billion, said Chief Financial Officer Bob Davis, citing the dollar's gains against the Japanese yen and euro. When the U.S. currency strengthens against other currencies, that reduces the number of dollars that companies can book when repatriating those funds.

The company also said it authorized the repurchase of an additional $200 million in stock during fiscal 2006, for a full-year total of up to $600 million. In April 2005 the company said it would repurchase up to $400 million during the year.

The company's shares rose 11 cents to $27.65 in after-hours trade on Inet. They closed 21 cents lower at $27.54 on the New York Stock Exchange.

Computer Associates trades at a price-to-earnings ratio, based on 2006 estimates, of 28.9, compared with the Dow Jones U.S. Software index P/E of 21.80.

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