Computer Sciences Corporation
) reported second-quarter fiscal 2014 earnings from continuing
operations of 93 cents per share, well ahead of the Zacks
Consensus Estimate of 82 cents.
Revenues decreased 9.7% from the year-ago quarter to $3.19
billion and missed the Zacks Consensus Estimate of $3.35 billion.
Weak performances across all business segments resulted in the
decline in revenues.
Segment-wise, revenues from Computer Sciences' North American
Public Sector (NPS) were down 11.6% from the year-ago quarter to
$1.05 billion in the quarter, primarily due to sequestration and
continuing uncertainties related to the federal budget. The
company is witnessing a shift in customer demand which has led to
a weakness in the NPS segment.
The company reported new business booking of $4.2 billion
which remained flat on a year-over-year basis but improved
significantly from $2.87 billion reported in the previous
Revenues from Global Business Services declined 12.8% on a
year-over-year basis to $1.04 billion, primarily due to deferment
of NHS and certain software contracts. Moreover, the shift in
business from a licensing model to business process services also
impacted segment revenues.
Computer Sciences generated $1.21 billion in revenues from its
Global Infrastructure Services which also declined 3.6% on a
The company reported a 29.0% year over year increase in
operating income to $338 million. The operating margin for the
quarter was 10.6% compared with 7.4% in the year-ago quarter. The
improvement was mainly due to margin expansions from all the
three business segments.
Operating margins for the Global Business Services, Global
Infrastructure Services and North American Public Sector
increased 410 basis points, 510 basis points and 290 basis points
respectively. Moreover, benefits received from better contract
performance and tight cost control also positively impacted
Net income from continuing operations of Computer Sciences
Corporation was $140.0 million or 93 cents per share, compared to
$108.0 million or 69 cents in the year-ago period.
The company exited the quarter with $2.1 billion in cash and
cash equivalents, up from $1.93 billion reported in the previous
quarter. Long-term debt balance (including current portion) stood
at $2.70 billion. Moreover, the company generated $270 million of
cash from operating activity, up from $213 million in the
previous quarter. Free cash flow generated amounted to $86
During the second quarter, Computer Sciences repurchased 2
million shares for an estimated $102 million at an average price
of $49.85 per share and paid dividends worth $30 million.
Computer Sciences expects its fiscal 2014 earnings to range
between $3.5 and $3.7 per share. Revenues are expected to be down
marginally on a year-over-year basis. The company expects to
generate free cash flow of $550 million in fiscal 2014.
Computer Sciences Corporation is one of the leading players in
the information technology (IT) services industry. The company
reported mixed second-quarter results, with the bottom line
increasing year over year and beating the Zacks Consensus
Estimate but revenues declining on a year-over-year basis and
missing the consensus mark. Although the company's operating
segments were down on a year-over-year basis, the company's shift
toward high-margin offerings are expected to be beneficial in the
long run. Moreover, the company's continuous share buy backs and
dividend payments are expected to support earnings and instill
However, the market is becoming increasingly competitive with
CACI International Inc.
) making their presence felt. Delay in the government's order
renewal process and constricted federal spending are the
near-term headwinds for the company.
Computer Sciences holds a Zacks Rank #3 (Hold).
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