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BMC Inc. (BMC) is scheduled to announce its second quarter 2012 results on October 26, 2011. We do not see much variation in analyst estimates at this point, although we expect the company to meet our expectations during the upcoming quarter.

First Quarter Overview

The company reported earnings per share of 59 cents in the first quarter of 2012, surpassing the Zacks Consensus Estimate of 57 cents.

Reported revenues of $502.0 million increased 9.0% year over year. During the quarter, the company continued to leverage its technology leadership and capitalized on the growing customer demand for highly advanced IT infrastructure. Moreover, the company’s cloud and software-as-a-service (SaaS) solutions gained further traction in the marketplace. The company’s mainframe business also performed well in the reported quarter.

Operating income on a GAAP basis was $115.1 million, up 6.5% from $108.1 million reported in the year-ago quarter. Excluding special items like severance costs and amortization of intangible assets, but including stock-based compensation expense, non-GAAP operating income was $139.7 million in the reported quarter, up 6.0% from $131.7 million in the prior-year quarter.

For fiscal 2012, BMC Software expects non-GAAP diluted earnings per share in the range of $3.25 to $3.35, which is 4 cents higher than the company’s previous expectations. At the midpoint, the guidance reflects a year-over-year increase of 10.0%. BMC expects cash flow from operations of between $825.0 million and $875.0 million for fiscal 2012, which at the mid-point, represents a year-over-year improvement of 11.0%.

Agreement of Analysts

Out of the five analysts providing estimates for the second quarter, none revised their estimates over the last 30 days.

The static estimates also reflect the absence of any major catalysts over the last 30 days. Consequently, the analysts are also maintaining their outlook for the third quarter of 2012. 

Some analysts believe that the company has not gained from overall deal activity in recent times. However, an improvement in linearity does provide a level of confidence heading into the latter part of the quarter.

The analysts are also of the opinion that the Service Automation business in the next quarter will grow in the range of 25.0% - 30.0% on a year-over-year basis, generating aggregate ESM license growth, which should allow the company to see a modest acceleration in aggregate revenue growth.

Moreover, the analysts also believe that low expenditure from different government and private customers may have a dampening effect on overall business volumes of the company. The current economic turmoil may also affect the business going forward.

Magnitude of Estimate Revisions

The magnitude of revisions is also minimal, since the company reported its first quarter results. Overall, estimates for the upcoming quarter have gone up from 70 cents to 71 cents over the last 90 days. However, estimates remained unchanged over the past 30 days.

For fiscal 2012, estimates have remained unchanged at $2.78 in the last 90 days. Similarly, there has been no revision in estimates over the past 30 days. For 2013, estimates have gone down from $3.06 to $2.99 in the last 90 days. No estimate revision was witnessed over the last 30 days.

Recommendation

BMC reported decent first quarter results. Moreover, the company provided a positive outlook for fiscal 2012. Acquisitions have expanded BMC’s product portfolio and facilitated a more comprehensive offering. On the other hand, no real growth in deal activity and low business prospects in the European region are factors working against it.

Moreover, we are a bit apprehensive about growing competition from big players such as International Business Machines Inc. (IBM), Hewlett-Packard Company (HPQ), EMC Corp. (EMC) and CA Inc. (CA), which bundle hardware and software offerings.

BMC currently holds a Zacks #4 Rank, which implies a short-term Sell rating.

 
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