Despite challenging macroeconomic conditions, technical service provider CACI International Inc. (CACI) reported relatively modest fourth-quarter fiscal 2014 results with a focused market-driven strategy, diligent execution of operational plans and strategic capital deployment for inorganic growth. Adjusted earnings (with employee stock option adjustments) of $1.51 per share for the reported quarter comfortably beat the Zacks Consensus Estimate by 8 cents.
On a GAAP basis, fourth-quarter fiscal 2014 earnings were $36.5 million or $1.49 per share, down from $37.9 million or $1.56 a share in the year-earlier quarter. The year-over-year decline in GAAP earnings was primarily attributable to a reduction in revenue and a dilutive effect of convertible notes that matured on May 1, 2014.
For fiscal 2014, CACI International reported GAAP earnings of $135.3 million or $5.38 per share compared with $151.7 million or $6.35 per share in fiscal 2013. The year-over-year decrease in GAAP earnings was largely due to lower revenues, one-time acquisition-related expenses and amortization of intangibles for Six3 Systems, and dilutive effect of matured convertible notes.
However, the reported earnings for fiscal 2014 exceeded the Zacks Consensus Estimate by 5 cents. Excluding non-recurring items, adjusted earnings for fiscal 2014 were $7.58 per share compared with $8.33 in fiscal 2013.
Quarter Details
Quarterly revenues were down 0.8% year over year to $905.7 million due to delays in planned awards, lower run rates on professional services contracts, and reductions in Afghanistan-related material purchases. Revenues for fourth-quarter fiscal 2014 missed the Zacks Consensus Estimate of $907 million.
Contract awards for the reported quarter improved 24.4% year over year to $698 million, bringing the tally for fiscal 2014 to $3.95 billion – about 14.7% higher than the $3.44 billion of awards received in fiscal 2013. Contract funding orders aggregated $906.8 million in the quarter and were up 25.7% year over year. For fiscal 2014, contract funding orders increased 5.7% year over year to $3.6 billion. This brought the total backlog tally to $7.1 billion as of Jun 30, 2014 with a funded backlog of $1.6 billion.
In terms of customer mix, the Department of Defense accounted for about 72.2% of total revenues in the reported quarter. Federal Civilian Agencies contributed about 22.0%, while Commercial and other customers accounted for 5.8% of total revenues.
Operating income stood at $69.2 million in the reported quarter versus $67.9 million in the year-ago quarter. The year-over-year increase in operating income was primarily due to higher gross profit, partially offset by amortization expenses related to the Six3 Systems acquisition. Earnings before interest, taxes, depreciation and amortization (EBITDA) improved to $87.5 million from $81.9 million in the year-ago quarter.
Balance Sheet and Cash Flow
The company ended fiscal 2014 with cash and cash equivalents of $64.5 million – almost flat from the year-ago tally of $64.3 million. Long-term debt (net of current portion) totaled $1,238.7 million at fiscal-end 2014, compared with $300.8 million at fiscal-end 2013.
Net cash provided by operations in fiscal 2014 was $198.6 million compared with $249.3 million in the year-ago period.
Outlook
For fiscal 2015, CACI International reiterated its previous guidance. Fiscal 2015 revenues are expected within $3.3 billion and $3.6 billion. Net income is expected in the range of $125 million to $135 million. Earnings per share are expected within $5.10 and $5.51. Direct labor costs are expected to be 4%–7% higher year over year coupled with higher indirect cost and selling expense in the 2%–4% range. Higher expenses coupled with even operating margins year over year are likely to impact the profitability of the company in fiscal 2015.
Moving ahead, CACI International expects to diligently focus on its operating plans to reward its shareholders with attractive risk-adjusted returns. The company also remains on track to fully integrate Six3 Systems with its operations to achieve at least 5% accretion to GAAP earnings per share and 10% on adjusted earnings per share basis.
CACI International intends to drive operational excellence by intensively focusing on its organic and inorganic growth strategies and strengthening its existing customer relationships while building newer ones.
Other Stocks to Consider
CACI International currently has a Zacks Rank #4 (Sell). Stocks that look promising and are worth considering in the industry include Syntel, Inc. (SYNT), Carbonite, Inc. (CARB) and NCI, Inc. (NCIT), each carrying a Zacks Rank #2 (Buy).
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