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Microsoft (MSFT) Posts Q2 EPS of 71c

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January 26, 2015 4:11 PM EST

(Updated - January 26, 2015 4:12 PM EST)

Microsoft (NASDAQ: MSFT) reported Q2 EPS of $0.71, which may not compare with analyst estimate of $0.71. Revenue for the quarter came in at $26.5 billion versus the consensus estimate of $26.2 billion.

These financial results include $243 million of integration and restructuring expenses, or a $0.02 per share negative impact, related to both Microsoft’s restructuring plan announced in July 2014 and the ongoing integration of the Nokia Devices and Services (“NDS”) business. There is also a $0.04 per share negative impact related to income tax expense resulting from an IRS audit adjustment.

*** Adjusted EPS came in at $0.77, versus the consensus at $0.75.

Microsoft also announced its intention to complete the existing $40 billion share repurchase authorization by December 31, 2016.

The following table notes the impact of the integration and restructuring expenses on the company’s financial performance (“Noted Items”). This financial information is provided to aid investors in better understanding the company’s performance. All growth comparisons relate to the corresponding period in the last fiscal year.

Three Months Ended December 31,

($ in millions, except per share amounts)

Revenue

Gross Margin

Operating Income

Diluted EPS

2013 As Reported (GAAP)

$24,519

$16,197

$7,969

$0.78

2014 As Reported (GAAP)

$26,470

$16,334

$7,776

$0.71

%Y/Y (GAAP)

8%

1%

(2)%

(9)%

2014 Impact of Noted Items

-

-

$(243)

$(0.02)

“Microsoft is continuing to transform, executing against our strategic priorities and extending our cloud leadership,” said Satya Nadella, chief executive officer of Microsoft. “We are taking bold steps forward across our business, and specifically with Windows 10, to deliver new experiences, new categories, and new opportunities to our customers.”

“We remain disciplined in our approach to operational and execution excellence, balanced with investments that drive meaningful growth for the business while increasing capital return to shareholders,” said Amy Hood, executive vice president and chief financial officer of Microsoft.

Devices and Consumer revenue grew 8% to $12.9 billion, with the following business highlights:

• Surface revenue of $1.1 billion, up 24%, driven by Surface Pro 3 and accessories

• Office 365 Home and Personal subscribers increased to over 9.2 million, up 30% sequentially over prior quarter

• Search advertising revenue grew 23%, with Bing U.S. market share at 19.7%, up 150 basis points over prior year

• Xbox console sales totaled 6.6 million units, with strong holiday season performance

• Phone Hardware revenue of $2.3 billion, with 10.5 million Lumia units sold driven by growth in affordable smartphones

• Windows OEM Pro revenue declined 13%; revenue was impacted by the business PC market and Pro mix returning to pre-Windows XP end of support levels and by new lower-priced licenses for devices sold to academic customers

• Windows OEM non-Pro revenue declined 13%, with license growth from opening price point devices

Commercial revenue grew 5% to $13.3 billion, with the following business highlights:

• Commercial cloud revenue grew 114% driven by Office 365, Azure and Dynamic CRM Online, and is now on an annualized revenue run rate of $5.5 billion

• Office Commercial products and services revenue declined 1%; transactional revenue was impacted by the continued transition to Office 365 and declines in commercial PCs following the XP refresh cycle

• Server products and services revenue grew 9%, with double-digit growth of SQL Server and System Center

• Windows volume licensing revenue increased by 3%, with annuity revenue growth partially offset by declining transactional revenue

“We again saw enthusiasm and demand around our cloud offerings like Office 365, Dynamics CRM Online and Azure, as well as Surface Pro 3,” said Kevin Turner, chief operating officer at Microsoft. “Our sales engagement worldwide continues to focus on helping customers and partners transition to the cloud and navigate the shifting product mix related to our services and solutions.”

For earnings history and earnings-related data on Microsoft (MSFT) click here.


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