Computer Associates EPS Strong, Guidance Weak

Updated from 4:52 p.m. EDT

Computer Associates ( CA) posted surprisingly strong first-quarter results after the bell Thursday, increasing revenue by 9% and beating Wall Street's earnings expectations by 3 cents a share.

But guidance for the second quarter was disappointing, and the company lowered its outlook for the rest of the year.

In recent after-hours trading, shares were off 2 cents, or less than 1%, to $24.71; the stock closed the regular trading day off 2 cents to $24.73.

The Islandia, N.Y., software company earned a profit from continuing operations of $53 million, or 9 cents a share, compared with a profit of $8 million, or 1 cent per diluted share, last year, according to generally accepted accounting principles.

Revenue for the first, or June, quarter was $860 million, up from $786 million a year ago and $10 million above the high end of the company's preliminary guidance provided on July 8. However, sales were still below the company's original guidance of $865 million to $885 million.

On a pro forma basis, the company reported a profit of 21 cents a share, while analysts polled by Thomson First Call had expected an EPS of 18 cents.

Jeff Clarke, CA's chief operating officer, said in a prepared statement: "Our results exceeded the preliminary revenue, earnings and cash flow guidance we provided earlier this month. We achieved these results through diligent focus on expenses while still investing in our major growth initiatives."

Software fees and other revenue for the first quarter of fiscal 2005 increased $9 million, or 13%, from the comparable prior-year quarter.

Looking forward to the second quarter, the company told investors to expect pro forma earnings to range from 15 cents to 17 cents on sales of $830 million to $850 million. Wall Street was expecting 18 cents a share on sales of $867.55.

CA lowered guidance for the rest of the year. The company said revenue will range from $3.4 billion to $3.5 billion, compared to earlier guidance of $3.5 billion to $3.7 billion. Pro forma earnings per share will range from 70 cents to 75 cents, down from the earlier range of 73 cents to 78 cents.

Wall Street was expecting a profit of 77 cents on sales of $3.57 billion.

We posted solid results this quarter in a challenging industry climate," said CA's interim Chief Executive Officer Ken Cron. "Customers are cautious with their technology spending and they're looking for a return on every dollar they invest in IT."

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