CA Posts Surprise Profit, Expects Channel Sales Growth in Second Half

For the fiscal quarter ended June 30, CA reported earnings of $10 million, or 2 cents per share, up from a loss of $67 million, or a loss of 11 cents per share, the same quarter a year ago. Revenue for the quarter climbed to $813 million, up from $765 million last year.

In May, CA said it expected to report an earnings loss of 3 cents to 4 cents per share on revenue in the range of $795million to $810 million.

"This improvement was driven by a combination of higher overall revenues and lower total costs," said Sanjay Kumar, chairman and CEO of CA, Islandia, NY, during a conference call.

He credited the company's FlexSelect subscription-based licensing model, which accounted for 55 percent of the quarter's revenue, up from 41 percent the same quarter a year ago.

Kumar told channel partners attending the CA World conference last week in Las Vegas that the vendor is still working to make sales through that flexible licensing model available to solution providers. CA plans to bring in a third party to handle the credit issues that would arise from opening the model to the channel, he said.

Excluding certain items, CA reported a profit of 14 cents per share, up from 2 cents per share the same quarter last year.

Financial analysts expected the company to earn 9 cents per share, according to Thomson Financial/First Call.

Channel sales for the quarter dropped about 16 percent to $80 million, down from $95 million the same quarter last year.

Aggressive pricing by CA on its BrightStor storage and eTrust anti-virus software contributed to the decline, said Ira Zar, CA's CFO.

To help boost indirect sales, the company last week at its CA World conference introduced a revamped channel program that added aggressive rebates, expanded lead generation and free training, certification and support for qualified partners.

"We are continuing to lay the groundwork today for a stronger channel business in the future," Zar said.

CA's channel sales will not likely grow until the second half of the fiscal year, Kumar said, which is when he expects the company's channel business to "pay dividends on the investments we've made."

During the quarter, CA expanded its board of directors with the addition of former EDS Vice Chairman Gary Fernandes in May. Last month CA named former Oracle executive Mark Barrenechea as senior vice president of product development, a newly created position.

CA also began to expense stock options during the quarter, Zar said.

For the second quarter, CA expects to earn one cent to three cents per share on revenue in the range of $805 million to $825 million. The company raised its full-year earnings expectations to a profit of seven cents to 12 cents per share, compared to previous expectations for a loss of five cents to 10 cents per share. The company's fiscal 2004 revenue projections remained unchanged at $3.28 billion to $3.43 billion.