Microsoft reports Q4 miss: $0.59 EPS on revenues of $19.89 billion

Microsof Earnings Q4 2013

With PC sales tumbling and Microsoft continuing to struggle to find its place in the mobile market, all eyes turn to the company’s fiscal fourth-quarter earnings report. Analysts expected the company to report earnings of $0.75 per share on $20.74 billion in revenue after the closing bell on Thursday. The results are in and Microsoft fell short of Wall Street’s expectations, posting earnings of $0.59 per share on $19.89 billion in sales. In its release, Microsoft noted that the earnings included a $900 million charge, or a $0.07 per share impact, related to the “Surface RT inventory adjustments.” In the same quarter last year, the company posted EPS of $0.73 on revenue totaling $18.06 billion.

Microsoft CFO Amy Hood explained that the “fourth quarter results were impacted by the decline in the PC market,” however the company continues to see “strong demand for our enterprise and cloud offerings, resulting in a record unearned revenue balance this quarter.” The executive noted that consumer demand for services like Office 365, Outlook, Skype and Xbox Live has also increased, and the company is “making the focused investments needed to deliver on long-term growth opportunities like cloud services.”

Microsoft chief executive Steve Ballmer said that new “compelling” devices such as Windows 8.1 tablets and PCs, along with its recent restructuring, puts the company in a position for “long-term success.”

Microsoft’s press release follows below.

Microsoft Reports Fourth-Quarter and Full-Year Results

Results reflect ongoing strength in enterprise offset by a challenging consumer PC market.

REDMOND, Wash. — July 18, 2013 — Microsoft Corp. today announced quarterly revenue of $19.90 billion for the quarter ended June 30, 2013. Operating income, net income, and diluted earnings per share for the quarter were $6.07 billion, $4.97 billion, and $0.59 per share. These financial results include a $900 million charge, or a $0.07 per share impact, related to Surface RT inventory adjustments.

In addition, these financial results reflect the recognition of $782 million of previously deferred revenue related to the Office Upgrade Offer. All growth comparisons relate to the corresponding period in the last fiscal year.

The following table reconciles these financial results reported in accordance with generally accepted accounting principles (GAAP) to non-GAAP financial results. We have provided this non-GAAP financial information to aid investors in better understanding the company’s performance.

 

Three Months Ended

June 30,

Percentage Change

(In millions, except per share amounts and percentages)

Revenue

Operating income

Diluted EPS

Revenue

Operating income

Diluted EPS

2012 As reported (GAAP)

$18,059

$192

($0.06)

Goodwill impairment

$6,193

$0.73

Windows Upgrade Offer

$540

$540

$0.06

2012 As adjusted (non-GAAP)

$18,599

$6,925

$0.73

2013 As reported (GAAP)

$19,896

$6,073

$0.59

10%

*

*

Office Upgrade Offer

($782)

($782)

($0.07)

2013 As adjusted (non-GAAP)

$19,114

$5,291

$0.52

3%

(24)%

(29)%

*Not meaningful

“While our fourth quarter results were impacted by the decline in the PC market, we continue to see strong demand for our enterprise and cloud offerings, resulting in a record unearned revenue balance this quarter. We also saw increasing consumer demand for services like Office 365, Outlook.com, Skype, and Xbox LIVE,” said Amy Hood, chief financial officer at Microsoft. “While we have work ahead of us, we are making the focused investments needed to deliver on long-term growth opportunities like cloud services.”

“We are working hard to deliver compelling new devices and high value experiences from Microsoft and our partners in the coming months, including new Windows 8.1 tablets and PCs,” said Steve Ballmer, chief executive officer at Microsoft. “Our new products and the strategic realignment we announced last week position us well for long-term success, as we focus our energy and resources on creating a family of devices and services for individuals and businesses that empower people around the globe at home, at work and on the go, for the activities they value the most.”

For Microsoft’s fiscal year 2013, the company’s revenue, operating income, and diluted earnings per share were $77.85 billion, $26.76 billion, and $2.58 per share. These financial results include a $900 million charge, or a $0.07 per share impact, related to Surface RT inventory adjustments. In addition, these financial results reflect the recognition of $540 million of previously deferred revenue related to the Windows Upgrade Offer, and a $733 million expense related to the European Commission fine.

 

Twelve Months Ended

June 30,

Percentage Change

(In millions, except per share amounts and percentages)

Revenue

Operating income

Diluted EPS

Revenue

Operating income

Diluted EPS

2012 As reported (GAAP)

$73,723

$21,763

$2.00

Goodwill impairment

$6,193

$0.73

Windows Upgrade Offer

$540

$540

$0.06

2012 As adjusted (non-GAAP)

$74,263

$28,496

$2.78

2013 As reported (GAAP)

$77,849

$26,764

$2.58

6%

23%

29%

Windows Upgrade Offer

($540)

($540)

($0.05)

European Commission fine

$733

$0.09

2013 As adjusted (non-GAAP)

$77,309

$26,957

$2.62

4%

(5)%

(6)%

*Totals do not foot due to rounding

Microsoft Business Division revenue grew 14% for the fourth quarter and 3% for the full year. Adjusting for the recognition of previously deferred revenue related to the Office Upgrade Offer, Microsoft Business Division non-GAAP revenue increased 2% for the fourth quarter. Office 365 is now on a $1.5 billion annual revenue run rate.

Server & Tools revenue grew 9% for the fourth quarter and 9% for the full year, driven by double-digit percentage revenue growth in SQL Server and System Center.

Windows Division revenue grew 6% for the fourth quarter and 5% for the full year. Excluding the impact of the prior year Windows Upgrade Offer revenue deferral, Windows Division non-GAAP revenue decreased 6% for the fourth quarter and 1% for the full year. In June, Microsoft released the public preview of Windows 8.1 which will be made available to OEMs in August.

Online Services Division revenue grew 9% for the fourth quarter and 12% for the full year, driven by an increase in revenue per search and volume. Bing organic U.S. search market share was 17.9% for the month of June 2013, up 230 basis points from the prior year period.

Entertainment and Devices Division grew 8% for the fourth quarter and 6% for the full year. During the quarter, transactional revenue within Xbox LIVE grew nearly 20%, and we unveiled our next-generation gaming and entertainment console, Xbox One.

“We continue to see strong demand for our enterprise products and services, with more and more customers making long-term commitments to the Microsoft platform,” said Kevin Turner, chief operating officer at Microsoft. “The growing adoption of our cloud services, including Office 365, Windows Azure and Dynamics CRM, continues to demonstrate our leadership position in the cloud.”

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