EMC Full-Year Forecast Trails Estimates on Dollar StrengthDina Bass and Antonia Massa
EMC Corp., the maker of storage computers that’s facing calls to break itself up, forecast lower-than-estimated 2015 profit and sales as a strengthened U.S. dollar threatens to crimp foreign revenue.
Full-year profit, excluding some charges, will be $1.98 a share on sales of $26.1 billion, Hopkinton, Massachusetts-based EMC predicted on Thursday. Analysts on average estimated earnings of $2.13 on revenue of $26.3 billion.
“I think the guidance is a little light because of the strengthening dollar concern,” Rajesh Ghai, a New York-based analyst at Macquarie Group Ltd., said by phone. Since it’s Chief Financial Officer Zane Rowe’s first full-year forecast, he may want “to make sure the company doesn’t miss estimates,” Ghai said.
EMC got a boost from its majority-owned VMware Inc., which reported results this week, beating estimates for profit on strong contract renewals. Still, VMware’s outlook for the year also fell short of analysts’ projections as the company anticipates sales will be hurt by a strong U.S. dollar and a shift to Internet-based cloud computing where less revenue is recognized up front.
The shares of EMC fell 1.3 percent to $26.25 at 11:20 a.m. in New York.
Fourth-quarter profit excluding some costs was 69 cents a share, EMC said in a statement. Revenue rose 5.5 percent to $7.05 billion. Analysts on average had projected profit of 68 cents on sales of $7.1 billion, according to data compiled by Bloomberg.
“Our strong operational results were impacted by currency fluctuations and EMC’s investments in high-growth businesses,” Rowe said in the statement. “We expect these factors to continue to impact 2015 results.”
EMC also said management approved a restructuring plan, including layoffs, that will be completed by the end of 2015. The resulting charge will be $130 million to $150 million, the company said.
Analysts are awaiting any news regarding the tenure of Chief Executive Officer Joe Tucci, who had said he will be stepping down by February. The CEO also said more recently that he’s willing to stay longer if the board wishes.
While the dollar’s climb is reducing profits at U.S. companies from Procter & Gamble Co. to Pfizer Inc. and Microsoft Corp., more than 77 percent of Standard & Poor’s 500 Index members have still beaten analysts’ estimates so far this earnings season, according to data compiled by Bloomberg.
Activist shareholder Elliott Management Corp. has been pressuring EMC to spin off faster-growing VMware, saying the parent is undervalued and the companies now compete and hinder each other’s opportunities. Earlier this month, Elliott and EMC agreed to a standstill agreement as EMC named two new Elliott-approved board members.
EMC’s board has been considering strategic options, including a spinoff, and held talks about a merger with Hewlett-Packard Co. that stalled over disagreements on price, people familiar with the matter said in September.
EMC has had “a lot of dialogue” with Elliott, Tucci said on a conference call Thursday, without commenting on the possibility of a spinoff.