EMC Corp. shares declined the most since May 2012 after third-quarter profit fell short of analysts’ estimates and the company cut sales and earnings forecasts for the year amid a drop in U.S. government spending.
EMC, the world’s largest maker of storage computers, slid 4.8 percent to $24.04 at the close in New York. The stock has fallen 5 percent this year, while the Standard & Poor’s 500 Index has gained 23 percent.
The company’s third-quarter sales fell $250 million short of its own forecasts, hurt by weaker U.S. government sales and some orders that came in late in the quarter and were therefore not fulfilled, Chief Financial Officer David Goulden said today on a conference call. The U.S. government generates 8 percent of EMC’s revenue, according to a report by Barclays Plc.
The government is “an important customer” for EMC, said Jayson Noland, an analyst at Robert W. Baird & Co. in San Francisco. Federal agencies, which typically buy storage equipment and software on predictable schedules, have been either putting off purchases because of questions about budgets or buying hastily, making forecasting difficult, he said.
“Deals that they thought were going to come in didn’t,” Noland said in an interview. “They’re taking too long to make a decision.”
For the third quarter, profit before some costs was 40 cents a share, the company said in a statement today. Analysts predicted 45 cents on average, according to data compiled by Bloomberg. Sales were $5.54 billion, compared with analysts’ average projection of $5.8 billion.
A federal budget stalemate in the U.S. resulted in the temporary shutdown of some agencies this month, and as the stoppage approached some government customers held off purchases. The government shortfall is a concern because the third quarter is typically the “biggest and most important” for these customers, Goulden said. Spending from that area decreased “significantly” compared with the year-ago quarter, after being unchanged in the first half of the year, he said.
EMC, based in Hopkinton, Massachusetts, forecast full-year sales of $23.25 billion and adjusted profit per share of $1.80. The company in July had projected revenue of $23.5 billion and profit of $1.85 a share.
The company said in March that it will boost revenue by at least 8 percent a year and profit will rise 10 percent annually through 2016 as market share increases. Sales will exceed $30 billion in 2016, Goulden said at the time.
While missing estimates, EMC’s earnings did get a boost from results at majority-owned VMware Inc. VMware, a Palo Alto, California-based maker of software that lets computers run multiple operating systems, reported profit that exceeded analysts’ projections as corporate customers renewed licensing deals, sending shares up 2.8 percent to $85.
Profit before certain items was 84 cents a share in the third quarter, and revenue rose 14 percent to $1.29 billion, VMware said yesterday in a statement.