CA Guidance a Bit Shy

Its third quarter is in line, and revenue is up by 5%

Author:: Bill Snyder
Publish date:: Jan 24, 2006 7:16 PM EST

Updated from 6:54 p.m. EST

delivered an in-line third quarter, but mainframe software billings were disappointing and earnings guidance for the current quarter was a bit shy of expectations.

In recent after-hours trading on Instinet, shares were down 98 cents, or 3.4%, to $27.90.

The mainframe and systems software giant grew revenue by 5%, while operating EPS jumped by 33%, CA (formerly Computer Associates) reported after the close of trading on Tuesday.

CA earned a profit of 9 cents a share, or $56 million, from continuing operations on sales of $967 million. Excluding charges for restructuring and other items, CA posted a profit of 24 cents a share, or $59 million.

The company took a charge of 3 cents a share for the cost of options. If revenue from the now sold

Multigen

unit is included, the company's net income was 10 cents a share.

Analysts polled by Thomson First Call were looking for a profit of 24 cents on sales of $967 million excluding charges.

Looking to the current, or fourth quarter, the company expects to earn a profit of 23 cents or 24 cents a share on sales ranging from $975 million to $1 billion. Analysts were forecasting a profit of 25 cents on sales of a bit over $1 billion. The one-penny difference is attributable to the pending $375 million acquisition of

Wily Technology

, announced earlier this month.

Billings in the third quarter were $1.29 billion, down 1% from the prior year, but up 2% when currency fluctuations are excluded. Mainframe software billings, a staple of CA, were off 5%, although the company had expected them to be flat. Mainframe software typically generates half of the Islandia, N.Y. company's total revenue.

Chief Operating Officer Jeff Clarke said during a call with analysts that his company needs to do a better job updating mainframe software and managing the sales team that sells it. Both tasks, he said, have been somewhat neglected but CA has instituted a five-part program to fix the problems, including new products later this calendar year, and support for newer mainframe hardware .

Clarke said that revenue from

IBM's

(IBM) - Get Report

much-heralded

new System z9 line of mainframe computers has not yet flowed to CA's top line.

CA now expects adjusted cash flow from continuing operations to rise 12% to 15% from last year -- up from earlier guidance calling for the measure to rise 10%.

And in a sign that CA and its new management team appear to have reached a state of relative normalcy, a post-announcement call with analysts was notably absent references to prior accounting scandals, indicted executives and explanations of why certain results needed to be restated.

However, regulators will take a hard look at CA by the end of September to be sure that a number of reforms agreed to as part of a so-called deferred prosecution agreement, have gone into effect. If a court-appointed observer is not convinced of the company's compliance, it could face charges of fraud and obstruction of justice.