Earnings Preview: Autodesk (ADSK)

Autodesk Inc. (ADSK) will release it second quarter 2011 earnings on August 12, 2010. On June 24, 2010, at its Investor Day, Autodesk raised the low end of its second quarter 2011 earnings and revenue guidance, primarily due to strong global end market demand. The company had also provided its long-term business outlook.

Excluding one-time charges but including stock based compensation expense, earnings per share are expected to be in the range of 19 cents to 22 cents. The current Zacks Consensus Estimate for earnings is pegged at 20 cents per share, excluding one-time charges but including stock based compensation. This is a 33% increase from the reported earnings of 15 cents per share in the year-ago quarter. This is in line with the company’s guidance.

Second quarter 2011 total revenue is expected between $445.0 million and $460.0 million, compared with the previous guidance of $435.0 million to $460.0 million. The Zacks Consensus Estimate is at $457.0 million.

For full year 2011, management did not provide any specific guidance. However, the company expects GAAP operating margin to increase significantly compared with 2010. Non-GAAP operating margin is expected to increase by approximately 300 bps in 2011. Management remains somewhat cautious due to de valuation of the euro and the general instability of the European economy. However, they anticipate a strong global demand environment going forward.

The company anticipates a strong growth from the Architecture, Engineering and Construction (AEC) segment, given the new products and delivery methods, increasing penetration into emerging markets (particularly Brazil, China and India) and cost efficient production capability.

Estimate Revision

Over the last 30 days, out of the 10 analysts covering the stock, 1 analyst has made a downward revision to the estimate for the second quarter and full year 2011. There were no upward revision for the second quarter; however, 1 analyst revised the estimates upward for full year 2011.

The Zacks Consensus Estimate for the second quarter has been lowered by a penny to 20 cents, while the 2011 EPS estimate has been upped by a penny to 91 cents over the last 30 days. While in the near term, the analysts expect growth to somewhat slow down, longer term they remain positive on the stock.

First Quarter Earnings Highlight

Autodesk reported better-than-expected first quarter 2011 results, with earnings per share of 22 cents, beating the Zacks Consensus Estimate of 16 cents per share based on strong year-over-year revenue growth in international markets and a recovery in corporate spending. Earnings exclude one-time charges but include stock based compensation expense.

The company experienced a strong year-over-year growth in maintenance billings and commercial new licenses in the first quarter, which along with the continued focus on cost control led to a significant improvement in operating profits.

First quarter total revenue was $474.6 million, up 11.5% year over year. This was well ahead of both the Zacks Consensus Estimate of $437.0 million and the high end of the company’s guidance ($420.0 million – $440.0 million). The year-over-year growth was primarily driven by a continued improvement in the demand environment and a strong international revenue growth.

Long Term Outlook

We remain positive on Autodesk’s long-term growth, primarily driven by expanding market share, new consumer growth, superior technology, diversified revenue growth base, increasing penetration into emerging markets, cost efficient production capability and a diversified product pipeline.

Over the long term (next five years), the company expects to deliver operating margin of at least 30%. Autodesk has set a target of 12% to 14% compound annual revenue growth (CAGR) in the next five years and expects to achieve non-GAAP operating margin of at least 30%.

The company continues to grow its maintenance revenues and installed base. The company expects low channel inventory and increasing efficiencies through channel partner framework, simplified upgrade pricing mechanism and electronic software delivery to drive top-line growth. Over the long term, Autodesk plans to broaden its customer base by new competitive wins, growth in new accounts and subscription, portfolio expansion and increasing penetration in emerging markets such as Brazil , China and India .

Management is also looking forward to maximize cash flow by optimizing capital allocation. The company expects to expand in the 3D interactive media market over the long term. We remain positive on the stock in the long term, given its strong revenues and operating performance.

Maintain Neutral

Autodesk is well positioned to benefit from a recovery in the economic environment, but we do not expect a strong recovery in 2011. However, over the long term, we remain positive on the company and advise investors to wait for a favorable entry point. Therefore, we maintain a Neutral recommendation on the stock, given our long-term confidence about ADSK’s growth opportunities.

Currently, Autodesk has a Zacks rank of #3, a short-term hold rating on the stock.

AUTODESK INC (ADSK): Free Stock Analysis Report

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