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BMC Inc. (BMC) is scheduled to announce its third quarter 2012 results on February 1, 2012 and we do not see much variation in the analysts’ estimates at this point.

Second Quarter Overview

The company reported second quarter 2012 earnings per share of 75 cents, surpassing the Zacks Consensus Estimate of 71 cents.

Total revenue of $556.7 million in the reported quarter increased 10.8% year over year. During the quarter, BMC witnessed a number of deal wins pertaining to cloud technology. Moreover, the company currently has a strong line up of new cloud deals.

Another strategic imperative on the company’s part is to become the leader in Software-as-a-Service (S-a-a-S) management. The company added a number of new SaaS customers during the quarter and the related amount of subscription annual contract value (ACV) exhibited strong growth.

Operating income on a GAAP basis came in at $161.0 million, up 12.2% year over year from $143.5 million. The company witnessed substantial reduction in R&D expenses, along with some reduction in selling, general & administrative expenses.

Moreover, BMC Software generated $161.7 million in cash flow from operations in the reported quarter, up from $127.1 million in the previous quarter. The company exited the quarter with cash and investments of $1.46 billion, down from $1.58 billion in the prior quarter.

For fiscal 2012, BMC Software expects non-GAAP diluted earnings per share in the range of $3.21 to $3.31 per share. At the midpoint, this reflects a 9.0% increase over the fiscal 2011 non-GAAP EPS. This range includes approximately 2 cents of dilution related to the company’s acquisition of Coradiant.

Agreement of Analysts

Out of the eight analysts providing estimates for the third quarter, none revised their estimates over the last 30 days. While for fiscal 2012 and 2013, one analyst each revised their estimate downward over the last 30 days.

The static estimates primarily 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. 

Analysts believe that currency will have a negative impact on overall bookings and revenue. In light of which, management has guided to a 1.0% dip in revenue and bookings for the third quarter of 2012. Some analysts also expect that the weakness of the Euro against the dollar has led to a 5.0% decline in revenues but a 3.25% gain on deferred revenue and bookings.

The company has a 50:50 ratio between domestic and international revenue. This implies that currency could have an impact of 50 bps to 100 bps over the next few quarters. BMC estimates currency to have a 50 bps impact on FY2012 bookings and 50-70 bps impact on FY2013 bookings.

Moreover, the analysts also believe that lower expenditure from different government and private customers may weigh down the 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 second quarter results. Overall, estimates for the upcoming quarter have remained unchanged at 70 cents over the last 90 days. Again, estimates for fiscal 2012 and 2013, have gone down by 1 cent, while the estimate of 2013 remained unchanged, over the last 90 days.

Recommendation

BMC reported decent second quarter results. But the company may witness a negative impact of currency on the total revenue and bookings. Moreover, 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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