During the company’s first quarter of fiscal 2017, Microsoft Corp. (MSFT, Financial) reported $4.7 billion of net income and diluted earnings per share of 60 cents based on general accepted accounting principles, as mentioned in its current report filing with the Securities and Exchange Commission. Even though the company’s financial outlook declined during the past few years, the company still reported higher income and earnings compared to the previous fiscal quarter. Based on non-GAAP figures, Microsoft’s revenue and income for the three months ending Sept. 30, 2016, outperformed corresponding values for the three months ending Sept. 30, 2015.
Company’s financial outlook remains strong as revenues increase
The Washington based application software company has a financial strength rank of 6, suggesting a moderately strong financial outlook. Microsoft’s Altman Z-score of 3.51 suggests minimal distress, and its return on invested capital significantly outperforms its WACC.
Even though the company’s profit margins have contracted during the past five years, Microsoft’s operating margin and net margin still outperform 90% of global infrastructure companies. Additionally, the company’s return on equity ranks higher than 85% of its competitors.
Microsoft’s trailing dividend yield of 2.54% outperforms nearly all global infrastructure companies. As mentioned in its earnings report, the company increased its quarterly dividend by 8% to 39 cents per share. The management of Microsoft likely raised the dividend due to increasing revenues. Chief Financial Officer Amy Hood expects the company to continue investing for long-term growth and maintaining high business execution.
The software company’s process revenue and intelligent cloud revenues increased 6% and 8%, respectively. Microsoft Azure, the company’s cloud computing platform, more than doubled its revenues, with usage levels exponentially increasing year over year.
Management reports strong company outlook for fiscal 2017
Satya Nadella, CEO of Microsoft, expects the company to infuse intelligence across its platforms, leading a “profound digital transformation” to its customers. The management drives the company’s revenue through innovation, engagement and addressable market fortification. The company expects to complete the current $40 billion share repurchase program by the end of 2016 and begin a new share repurchase program next year.
As the phone revenue declined 72% during the first quarter of fiscal 2017 compared to the corresponding figure during the first quarter of fiscal 2016, the management expects to close the sale of its entry-level feature phone business during the second quarter of fiscal 2017. The company also expects to close the LinkedIn acquisition by the end of 2016, subject to regulatory approvals. As discussed in the merger announcement, the merger deal expects to combine two leading businesses centered on connecting the world’s professionals and accelerating the target company’s growth.
Conclusions and see also
The T Rowe Price Equity Income Fund (Trades, Portfolio) increased its position in Microsoft by 0.63% during the third quarter after purchasing 470,300 shares in the prior quarter. The software company averaged $51.96 and $56.45 during the second quarter and the third quarter, respectively. A previous article discusses the fund’s major transactions during the third quarter.
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Disclosure: No position in Microsoft.
