Shares of Unisys Corporation (UIS) shot up sharply after it reported impressive third-quarter 2014 results, breaking its trend after several quarters of missing estimates amid deteriorating earnings and revenues. The company’s adjusted earnings per share came in at $1.30 versus 25 cents in the prior-year quarter, beating the Zacks Consensus Estimate of 70 cents by a wide margin. Revenues and earnings both significantly topped expectations, which is why the shares were up almost 22% in the trading session following the earnings release.
Adjusted net income for the quarter came in at $65.7 million, rising nearly five-fold from the prior-year figure of $11 million. The outperformance came on the back of robust revenue growth in both its services and technology segments, with its ClearPath enterprise software and servers witnessing considerably higher sales. The bottom line also benefited from gross margin expansion, especially from the higher-margin technology segment.
Including non-recurring items, earnings per share came in at 95 cents, compared with a net loss of 26 cents in the prior-year quarter.
Total revenue increased 11.4% to $882.5 million, compared with $792.1 million in the prior-year quarter, beating the Zacks Consensus Estimate of $859 million. Unisys saw a boost in sales across its segments and geographic regions. Revenues from the U.S increased 12%, while international revenues climbed 11% year over year.
Segment Results
In the Services segment, revenues grew 6% year over year to $763 million, driven by strong growth in systems integration and IT outsourcing, which more than offset weakness in infrastructure services. Service orders for the quarter declined as order growth for IT outsourcing and systems integration was more than offset by weakness in infrastructure services. Services backlog at quarter-end was $4.4 billion, down 7% sequentially. Gross profit margin for the segment contracted to 19.5% from 21.1% a year ago.
TheTechnology segment witnessed robust growth after a slow first half of the year, as revenues increased 66% from the year-ago quarter to $119.5 million, driven by sharply higher sales of the company’s flagship ClearPath enterprise software and servers. Gross profit margin for the segment expanded to 61.5% from 35.3% in the year-ago quarter.
Balance Sheet/Cash Flow
Cash generated by operating activities totalled $16 million, which included pension contributions worth $40 million. The company’s capital expenditure increased to $54 million versus $39 million in the year-earlier quarter, as it amplified investments in its information technology outsourcing business. Free cash flow usage before pension funding was $3.8 million, compared with free cash flow before pension contributions of $17.4 million in the year-ago quarter.
At quarter end, Unisys had total debt burden of $215 million, with cash and cash equivalents of $476.5 million. During the quarter, the company returned around $16 million to shareholders through repurchase of common stock, under a $50 million share repurchase program that expires on Dec 31, 2014.
Closing Comment
Unisys is back on the growth trajectory after sustained weak performance over the last few quarters. Its persistent efforts to stabilize and develop its flagship ClearPath business are paying off, and the server line presently boasts the most secure and modern enterprise server platform in the industry for mission-critical applications.
The company’s Stealth product is also set to capitalize on the rapidly expanding cybersecurity market, with its Forward! platform showing strong potential due to the growing converged infrastructure solutions market. The company has a strong product line in its technology segment, and is expanding its distribution capabilities by building new reseller channels.
The services unit is also witnessing growth opportunities in higher-margin services. Unisys is rationalizing its services and solution portfolio and shifting its offerings to cloud-based and software-as-a-service delivery models, as it seeks to keep up with the evolution in the IT industry.
To conclude, the company’s continued investments in strategic high-potential products and services position it well for sustained growth and are expected to reap benefits in the coming quarters.
Unisys currently sports a Zacks Rank #1 (Strong Buy). Other stocks that look promising and are slated to report earnings soon include ZELTIQ Aesthetics, Inc. (ZLTQ), White Mountains Insurance Group, Ltd. (WTM) and Gentherm Incorporated (THRM), each holding the same rank as Unisys.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Be the first to comment