Shares of Computer Sciences Corporation (CSC) slumped 7.9% in afterhours trading yesterday, after the company reported lower-than-expected third-quarter of fiscal 2015 revenues. Also, tepid fiscal 2015 earnings guidance impacted share price.
However, the company posted non-GAAP earnings from continuing operations of $1.18 per share, comfortably surpassing the Zacks Consensus Estimate of $1.12. Also, reported earnings increased on a year over year basis attributable to cost control measures and lower tax rate.
Quarter Details
Revenues were down 8.7% from the year-ago quarter to $2.95 billion and missed the Zacks Consensus Estimate of $3.18 billion.
Segment-wise, revenues from Global Business Services (GBS) decreased 11.7% on a year-over-year basis to $965 million, primarily due to a shift in consulting business and contract completions.
Global Infrastructure Services (GIS) revenues were down 14.1% from the year-ago quarter to $984 million, primarily due to a decline in prices and certain contract modifications. Nonetheless, the company saw growth in its cloud and next-generation business.
Revenues from Computer Sciences’ North American Public Sector (NPS) on the other hand were up 0.8% from the year-ago quarter to $998 million. The year-over-year increase was primarily attributed to better-than-expected growth from infrastructure services, business process outsourcing and health care applications.
Computer Sciences reported bookings of $2.7 billion, which compared unfavorably with $3.3 billion bookings in the year-ago period and $3.0 billion bookings reported in the previous quarter.
Computer Sciences’ adjusted operating income (excluding all one-time items) was up 3% year over year and came in at $172 million, primarily due to better cost management and good performance of certain contracts. The company saw a 9.8% decrease in cost of sales and also reported a 11.4% decrease in selling, general and administrative expenses. This in turn impacted operating margin, which increased 67 basis points on a year over year basis.
Adjusted net income from continuing operations came in at $169 million compared with $157 million reported in the year-ago period.
The company exited the quarter with $2.39 billion in cash and cash equivalents compared with $1.92 billion reported in the previous quarter. Long-term debt balance (including current portion) stood at $2.72 billion. Moreover, the company generated $653 million of cash from operating activity compared with $217 million in the previous quarter. Free cash flow came in at $498 million.
During the third quarter, Computer Sciences repurchased shares worth $9 million and paid $32 million as dividends.
Fiscal 2015 Outlook
For fiscal 2015, Computer Sciences reiterated its earnings per share forecast of $4.45–$4.65 (mid-point $4.55). The Zacks Consensus Estimate is pegged at $4.63 per share.
Our Take
Computer Sciences Corporation is one of the leading players in the information technology services industry. The company reported mixed third-quarter results wherein the bottom line beat the Zacks Consensus Estimate but the top line missed the same. The company reiterated its fiscal 2015 earnings outlook.
We believe that despite the company’s revenues being down on a year over year basis, the shift toward higher margin offerings will be beneficial over the long run. The company’s traction in the cloud and partnerships with HCL, AT&T (T), VMware (VMW) and Microsoft (MSFT) are expected to drive growth, going forward.
Moreover, the company’s continuous share buybacks and dividend payments are expected to support earnings and boost investors’ confidence.
However, the market is becoming competitive with companies like CACI International Inc. and Accenture making their presence felt. Delay in government’s order renewal process and constricted federal spending are the near-term headwinds. Moreover, tepid overall bookings remain a cause of concern.
Currently, Computer Sciences has a Zacks Rank #3 (Hold).
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