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What’s Driving Oracle’s Earnings Growth?

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Oracle beat fourth-quarter earnings estimates

Cloud services provider Oracle (ORCL) posted adjusted EPS of $1.16 in the fourth quarter of fiscal 2019, which exceeded analysts’ expectation of $1.07 and marked a rise over the previous year’s $0.95. Oracle has beaten earnings estimates for the last ten consecutive quarters.

In comparison, Oracle’s peer Symantec (SYMC) posted adjusted EPS of $0.39 in the fourth quarter, the results for which it announced last month. Its EPS were in line with Wall Street’s expectations and were within its own guidance range of $0.37–$0.41. Its adjusted EPS were, however, down ~11.4% YoY (year-over-year).

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Earnings drivers

Oracle’s adjusted EPS of $1.16 rose ~23% YoY, surpassing the company’s expectation of $1.05–$1.09. Its earnings rose 27% on a constant-currency basis driven by revenue growth of 4%, margin improvements, significant share buybacks, and a lower tax rate.

The company is shifting from lower-margin commodity hardware to the higher-margin cloud business to make profits. During fiscal 2019, the Fusion and NetSuite cloud application businesses, which have high margins, performed well and added to the company’s earnings growth.

Oracle’s adjusted operating income grew 4% YoY, while on a constant-currency basis, its operating income increased 7% YoY. Its operating margin expanded 115 basis points to 47% in the quarter, its highest level in the last five years, as it’s been focusing on reducing its head count around the world to cut costs.

Guidance

Oracle’s CEO, Safra Catz, expects the company to deliver adjusted EPS (including currency) in the range of $0.80–$0.82 in the first quarter compared to analysts’ expectation of $0.81. In fiscal 2020, Oracle is targeting double-digit growth in its earnings on a constant-currency basis.

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