Novell Earnings Predictions 1996
Eric:
The $.98 EPS is for 1997. The consensus for 1996 is $.50. My crystal ball predicts the following:
1st qtr actual $.17
2nd qtr predicted (.04)
3rd qtr predicted .34
4th qtr predicted .40
1996 predicted $ .87
The numbers above take into account the repurchase of stock (up to 37 million by year end), improved expenses without WP, sales and earnings growth of 5% a quarter, and the benefit of the one time inventory adjustment on the second half of the year (see the last sentence below).
Comments from 1st quarter which impact 2nd qtr:
During the first-quarter Novell reduced its employment by 625 employees and incurred restructuring
charges of $18 million for severance and redundant facilities as the company prepared for the sale of
its personal productivity applications business. Excluding a $0.03 per share impact from these
nonrecurring charges, first quarter earnings were $0.20 per share.
Company-wide cost controls reduced total operating expenses by $40 million from fourth-quarter
1995 levels. As a result of these measures, income from operations, excluding nonrecurring charges,
improved to $101 million in the first fiscal quarter, up 31 percent from $77 million in the fourth fiscal
quarter 1995.
Robert J. Frankenberg, chairman and CEO of Novell, said, "The positive results we achieved in our
first quarter are based on having the right controls in place to tightly manage Novell's business as we
took significant actions to refocus Novell to network software. We believe the steps taken position
Novell to gain the full benefit of our network software leadership."
On the balance sheet, cash generated from operations during the quarter was $27 million. Cash and
short-term investments now total $1.2 billion, compared with $1.3 billion at October 28, 1995.
Novell repurchased approximately 7 million shares of its common stock for $106 million during the
first fiscal quarter. The company's Board of Directors authorized the repurchase of up to 37 million
shares of common stock through October 1996.
Distribution Stocking Policy Change
Looking forward to its second fiscal quarter, Novell has decided to implement a change in its
traditional distribution stocking policy that will significantly reduce revenue and earnings in that
quarter. Because Novell is experiencing rapid growth in revenue from expanding multi-product
network software licensing programs the company has decided to reduce and rebalance channel
inventories to change the mix of product in the channel and better match evolving purchase patterns.
"We are changing a long standing policy at Novell that over the years served our channel partners
and customers well by maintaining worldwide availability for what at times were more than a
thousand individual product configurations," said Frankenberg. "Over recent years Novell has
developed and tested license programs to make it easier for our channel partners to combine Novell
products into complete network solutions. Today, these license programs are fast becoming a
preferred alternative for deploying network solutions."
In 1996 these multi-product license programs are expected to account for more than 35 percent of
total Novell product revenue, up from four percent of company revenue when they were launched in
1994. Since the 1980s, Novell has consistently maintained high channel inventories of packaged
software products to guarantee product availability to customers. But,with an increasing proportion
of revenue now derived from channel partner and customer license agreements,and OEM royalties,
high levels of individual product inventories are no longer necessary. Channel partners and programs
will continue as the primary way for customers to purchase Novell network solutions, but a declining
percentage of this business will be from delivery of individual products in individual boxes. Novell
intends to reduce product inventories by up to $225 million across its worldwide distribution
channels in its second-quarter 1996. This reduction is expected to decrease second-quarter revenue
by a corresponding amount and will likely result in a moderate loss in the quarter.
The resetting of channel inventories is expected to have several positive effects. For Novell channel
partners it will improve inventory turns and likely lead to increased profits. For Novell, it will help
reduce cost-of-goods and lessen costs associated with channel promotions and the rotation of old
product out of the channel as products are updated.
The company believes the actions it is taking in quarter one and two will lead to a favorable outlook
for improving earnings in the second half of the year. |
