Computer Sciences Corporation (CSC) reported second-quarter of fiscal 2015 earnings from continuing operations of $1.18 per share comfortably surpassing the Zacks Consensus Estimate of $1.01.
Quarter Details
Revenues were down 3.4% from the year-ago quarter to $3.08 billion and missed the Zacks Consensus Estimate of $3.18 billion.
Segment-wise, revenues from Global Business Services (GBS) decreased 1.9% on a year-over-year basis to $1 billion, primarily due to shift in business to high-value technology software and services.
Revenues from Computer Sciences’ North American Public Sector (NPS) were down 1.1% from the year-ago quarter to $1.04 billion, primarily due to the persistent decline in contracts from the U.S. Department of Defense.
Global Infrastructure Services (GIS) revenues were down 6.9% from the year-ago quarter to $1.04 billion primarily due to a decline in prices and certain contract modifications. Nonetheless, the company witnessed growth in its cloud and cyber related businesses.
Computer Sciences reported bookings of $3.0 billion which compared unfavorably with $4.2 billion booking in the year-ago period but up from $2.7 billion bookings reported in the previous quarter.
Computer Sciences’ adjusted operating margins remained flat year over year primarily due to higher investments in developing new products and services, and restructuring of certain contracts. The company witnessed 4.8% decrease in cost of sales and reported 10.2% increase in selling, general and administrative expenses.
Net income from continuing operations came in at $177 million compared with $162 million reported in the year-ago period.
The company exited the quarter with $1.92 billion in cash and cash equivalents compared with $2.44 billion reported in the previous quarter. Long-term debt balance (including current portion) stood at $2.78 billion. Moreover, the company generated $217 million of cash from operating activity compared with $273 million in the previous quarter. Free cash flow came in at $31 million.
During the second quarter, Computer Sciences repurchased shares worth $278 million and paid $32 million as dividends.
Fiscal 2015 Outlook
For fiscal 2015, Computer Sciences expects revenues to be flat to down marginally on a year-over-year basis. The company increased its earnings per share forecast from a range of $4.35–$4.55 to $4.45–$4.65. The Zacks Consensus Estimate is pegged at $4.52. The company expects to generate free cash flow of approximately $700 million in fiscal 2015. The company expects to reinvest $350–$400 million in growth initiatives and cut costs by $450–$500 million during the same time frame.
Our Take
Computer Sciences Corporation is one of the leading players in the information technology services industry. The company reported mixed second-quarter results wherein the bottom line beat the Zacks Consensus Estimate but the top line missed the same. The company also increased its fiscal 2015 earnings outlook.
We believe that despite the company’s operating segments remaining down on a year-over-year basis, the shift toward high-margin offerings will be beneficial in 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 instill 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.
Despite sales team reorganization, the revenues remain subdued. Full effect of the sales team restructuring could take longer than expected which is a near-term headwind. Moreover, tepid overall booking remains a cause of concern.
Currently, Computer Sciences has a Zacks Rank #3 (Hold).
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