Earnings Preview: Autodesk - Analyst Blog

Autodesk Inc. (ADSK) will release its third quarter fiscal 2011 results on November 18, 2010.

Second Quarter Highlights

On August 12, Autodesk's second quarter 2011 earnings per share (EPS) of 30 cents jumped 100.0% year over year from 15 cents and were well ahead of the company's guidance of 19 cents to 22 cents per share. EPS also topped the Zacks Consensus Estimate of 20 cents, posting a surprise of 50.0%.

Earnings exclude one-time charges but include stock-based compensation expense. Earnings were driven by higher revenues, growth in international markets and impressive cost controls.

Total revenue of $472.8 million was up 14.0% year over year from $414.9 million, attributable mainly to a strong global end market demand. This was well ahead of both the Zacks Consensus Estimate of $457.0 million and the company's guidance of $445.0 million to $460.0 million. The year-over-year growth was primarily driven by a continued improvement in the demand environment, favorable foreign exchange and strong international revenue growth.

Guidance

During the second quarter conference call, management provided third quarter guidance. For the third quarter, management expects revenues between $450.0 million and $475.0 million, in line with the Street expectation of $463.8 million.

Excluding 4 cents per share for the amortization of acquisition-related intangibles but including 6 cents per share related to stock-based compensation expense, EPS is expected to be in the range of 22 cents to 27 cents. The effective tax rate is expected to be 27%.

For full year 2011, management did not provide any specific guidance but expects the fourth quarter 2011 to be the strongest. Given the strong first half fiscal 2011 results, management expects increased revenues and higher operating margins in full year 2011. The non-GAAP operating margin for 2011 is expected to increase by approximately 400 to 450 basis points (bps) in 2011, compared with the previous expectation for an increase of 300 bps.

Estimate Revision

For the third quarter of 2011, the earnings revision trend remains considerably positive. Of the 9 analysts providing estimates, 2 analysts revised their estimates upward for the third quarter of 2011 over the last 30 days. For fiscal year 2011, 2 analysts raised their EPS projections in the same period. There were no downward revisions.

In accordance with the overall trend of estimate revisions for Autodesk, the Zacks Consensus Estimate for the third quarter 2011 remained unchanged at 25 cents per share in the last 30 days. However, it is a 66.7% improvement over last year's EPS of 15 cents. The Zacks Consensus Estimate for the full year advanced 1 cent to $1.03 per share in the last 30 days.

Our Take

The company will benefit from an increased demand for 3D products, expanding market share, a diversified product pipeline, cost-cutting initiatives, margin expansion and liquidity. Moreover, Autodesk continues to benefit from growth in new accounts and subscription and increasing penetration in emerging markets.

We remain positive on the stock, given its strong revenues and operating performance, improving European business and growing key metrics.

However, foreign exchange headwinds and intense competition from Adobe Systems Inc. (ADBE), Apple Inc. (AAPL) and Avid Technology Inc. (AVID) remain a concern.

Autodesk has posted an average positive surprise of 42.5% in the last four quarters, implying that the company beat the Zacks Consensus Estimate by an average of 42.5%.  With improving numbers and the absence of any downward revision in analysts' estimates, the current Zacks #2 Rank indicates a short-term Buy rating.

We expect the company to post upbeat third quarter 2011 results and therefore maintain our Neutral recommendation on Autodesk over the long term.

 
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