Autodesk: Earnings Preview

Autodesk Inc. (ADSK) is scheduled to announce its second quarter 2012 results on August 18, 2011 after the closing bell. We do not see any major variation in analysts’ estimates in the run-up to the earnings release.

Prior-Quarter Recap

Autodesk witnessed strong revenue growth across all its segments and markets in the first quarter of 2012. Revenues not only beat the Zacks Consensus Estimate but also surpassed management’s guidance range. However, earnings per share (EPS) were in line with the Zacks Consensus Estimate.

EPS, including stock-based compensation but excluding one-time charges were up 47.6% year over year, driven by strong revenue growth.

Positive results in the quarter were backed by year-over-year growth across all the served geographies. Autodesk’s international businesses also contributed to the strong revenue growth in the quarter.

Second Quarter 2012 & Fiscal 2012 Estimates

For the forthcoming quarter, Autodesk expects revenues in the range of $530.0 million to $545.0 million. The Zacks Consensus Estimate is pegged at $539.0 million (high end of the guided range).

The GAAP EPS is expected in the range of 25 cents to 29 cents. Non-GAAP EPS is projected at between 37 cents and 41 cents for the quarter, which excludes 8 cents related to stock-based compensation expense and 4 cents for the amortization of acquisition related intangibles, net of tax. The current Zacks Consensus estimate for the quarter (including stock-based compensation) is 34 cents.

Net revenue for fiscal 2012 is expected to increase by approximately 12.0% from the year-ago level. Autodesk anticipates fiscal 2012 GAAP and non-GAAP operating margins to increase by at least 200 basis points (bps) compared with fiscal 2011. The non-GAAP operating margin excludes approximately 60 bps of restructuring charges, 20 bps of intangibles amortization charges and a negative 50 bps of stock-based compensation expense.

Autodesk expects effective tax rate of approximately 23.0% for GAAP results and approximately 25.0% for non-GAAP results.

Estimate Revision Trend

None of the six analysts covering the stock revised their estimates in the last 30 days. Hence, the EPS estimate for the second quarter of 2012 remained at 34 cents.

However, for fiscal year 2012, one positive revision was witnessed in the last 30 days. But the EPS estimate for fiscal 2012 remained at $1.40.

Most of the analysts covering the stock are optimistic about the company’s market share gains and presence in emerging markets, which will likely drive top-line going forward. Revenue from emerging economies represented 15.0% of the total revenue in the previous quarter and compared favorably on a year-over-year basis.

The analysts also expect significant earnings growth for 2012 on the back of accelerating license revenue, maintenance and renewal rates.

Conclusion

Autodesk posted a positive average earnings surprise of 26.6% in the trailing four quarters, implying that the company either beat or was in line with the Zacks Consensus Estimate over the same period. The company is also expected to post another positive surprise in the upcoming quarter.

In our view, the company’s improvements and innovations in 3D design technology and product portfolio provides a competitive edge. Moreover, Autodesk’s expanding product portfolio and broadening industry and geographic reach will help it sustain its longer-term growth strategy of providing high-volume, lower-cost CAD software. We believe this will likely drive earnings going forward.

However, foreign exchange fluctuations and competition from Adobe Systems Inc. (ADBE), Parametric Technology Corp. (PMTC) and Avid Technology Inc. (AVID) remain headwinds.

We have a Neutral recommendation on Autodesk’s shares in the long term.

Currently, Autodesk has a Zacks #3 Rank, which translates into a short-term (1-3 months) Hold rating.