Symantec Corp. (SYMC:US) Chief Executive Officer Steve Bennett’s efforts to restructure the security-software maker are taking a toll on sales.
The company’s shares slumped as much as 15 percent after the company gave profit and revenue forecasts that fell short of analysts’ estimates. Sales staff, who are being assigned fewer clients and getting additional training, weren’t able to close as many deals, Bennett said yesterday.
Bennet, who was appointed CEO in July 2012 after the ouster of Enrique Salem, has said job cuts and restructuring to combine far-flung divisions are part of a multiyear turnaround plan. While he has streamlined bloated product lines and pricing at the biggest maker of computer-security software, the restructuring could take years to deliver results as antivirus software sales slump along with personal-computer shipments, according to Steve Ashley, an analyst at Robert W. Baird & Co.
“The question is, how long, how messy, how noisy will it be in between?” said Milwaukee-based Ashley, who has the equivalent of a buy rating (SYMC:US) on the stock. “They’re going to get some forgiveness from Wall Street -- everybody recognizes that they’re headed to a much better place -- but they have to go through some heavy lifting to get there.”
Profit excluding some costs will be 41 cents to 43 cents a share on revenue of $1.63 billion to $1.67 billion in the fiscal third quarter ending in December, Symantec said in a statement yesterday. Analysts on average were projecting profit of 51 cents on sales of $1.79 billion, acccording to data (SYMC:US) compiled by Bloomberg.
Symantec dropped as low as $20.82 in extended trading. Shares of the Mountain View, California-based company declined 2.3 percent to $24.62 at the close in New York, and had climbed 87 percent (SYMC:US) since Bennett was appointed last year.
Bennett said in an interview that the changes he’s made, such as giving each salesperson fewer products to focus on, are causing more disruption than he anticipated. Results are being hurt because the employees are are being re-trained and building new client lists, learning to be “hunters rather than farmers,” he said.
“I’m disappointed in the financial results, and I’m disappointed that I underestimated the impact that would have,” Bennett said, referring to the restructuring. “It was my miss. These were all things we did intentionally. We have a bit of a hole to dig out of here because we made these changes that we know are the right things to help us long-term, but there is some short-term pain.”
The changes combined with a declining PC market contributed to a forecast that makes Symantec a “glass-half-empty” stock, said Daniel Ives, an analyst at FBR Capital Markets & Co. in New York. He has a market perform rating on Symantec shares, the equivalent of a hold.
“It looks like they hit a pretty big speed bump,” Ives said. “This continues to be a business model that’s in transition. It just shows that the turnaround could take longer than expected.”
In the second quarter, which ended Sept. 27, profit before amortization, restructuring expenses, stock-based compensation and other items was 50 cents a share on sales of $1.64 billion, missing average analyst estimates of 44 cents and $1.69 billion.
Net income rose 28 percent to $241 million, or 34 cents a share, from $189 million, or 27 cents, a year earlier.
While demand for security software is rising as hacking attacks become more sophisticated, the industry is highly fractured. Traditional antivirus makers such as Symantec and McAfee, which is now owned by Intel Corp. (INTC:US), are seeking to tailor their products to counter more advanced threats and competing security technologies from companies including Palo Alto Networks Inc. (PANW:US) and FireEye Inc. (FEYE:US) The market for computer-security technologies will reach $65.7 billion this year, according to researcher Gartner Inc.
Demand for antivirus software is also waning as PC sales decline, since the products are often bundled together. Symantec has struggled to expand in the data-storage market. The $10.2 billion acquisition (SYMC:US) of Veritas Software Corp. in 2005, which made Symantec a major data storage provider, hasn’t paid off, and is dwarfed by bigger players including International Business Machines Corp. (IBM:US) and EMC Corp. (EMC:US)
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