CA Technologies Expects Traction in Second Half

Steven Bobson, Europe & Americas Editor
September 12, 2012 /

Exposure to Europe can be a problem for companies.

As CEO William McCracken said at theCA Technologies ( CA ) earnings call July 26, “the macroeconomic environment in Europe puts a downward pressure on everything you do.”

He added that in the U.S. “the economy is a drag.”

Meanwhile, CA Technologies — an IT management software and provider of technology for mainframe, virtual and cloud applications — had its own problems in fiscal Q1 ended in June.

The company rebalanced its sales force and added 300 to the head count through August to increase penetration in growth markets. The transition, though, proved rougher than expected.

“Anytime you move people into new territories, create new coverage models and train extensively, it takes time away from the customers,” McCracken said at the call.

He said the company didn’t anticipate “the level of disruption.”

As a result, new product sales were down 30% on a year-ago basis.

With the transition now behind CA Technologies, McCracken says, “We see the second half of this year as when that gets traction, not second quarter.”

In June, CA Technologies announced it was searching for a new CEO to replace the 69-year-old McCracken. By contract, he will be CEO until March. Since McCracken took over as CEO in late January 2010, CA’s stock has risen 25% vs. 35% for the S&P 500.

However, under his leadership, the quarterly dividend rose from 4 cents a share to 25 cents a share. The annualized yield is 3.7%.

Earnings grew 15% in Q1, but revenue fell 2% because of a $32 million head wind from foreign exchange. Without that, revenue would’ve risen 1%. About 24% of CA’s revenue is tied to Europe. The stock chart looks promising.

After peaking in March, CA began work on an awkward double-bottom base. The potential buy point is 27.34.
The base is stage one, according to MarketSmith’s pattern-recognition technology. That’s considered a lower-risk pattern.

 

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