Computer Sciences Corporation
) reported fourth-quarter 2014 earnings from continuing operations
of $1.09 per share, well ahead of the Zacks Consensus Estimate of
Revenues decreased 4.9% from the year-ago quarter to $3.33
billion and also lagged the Zacks Consensus Estimate of $3.38
billion. Weak performances across all segments resulted led to the
revenue decline. Moreover, decline in federal business and a
certain change in the commercial consulting business were partly
responsible for the dismal revenue performance.
Segment-wise, revenues from Global Business Services (GBS)
declined 3.5% on a year-over-year basis to $1.18 billion, primarily
due near-term impact of shift in business to a high-value
technology services. This shift is expected to have long-term
Revenues from Computer Sciences' North American Public Sector
(NPS) were down 11.3% from the year-ago quarter to $1.0 billion in
the quarter, primarily due to the continuing tepid demand in the
U.S. federal market.
Nonetheless, Global Infrastructure Services (GIS) revenues
increased marginally (up 0.2%) on a year-over-year basis primarily
driven by cloud business (up 108% year over year) and commercial
cyber business (up 78% year over year), which partially offset the
decline in prices and certain contract modifications.
Computer Sciences reported $1.3 billion year-over-year increase
in its commercial bookings during the quarter. The company's
book-to-bill ratio was 1.4.
Computer Sciences' adjusted operating margins increased from
10.2% in the year-ago quarter to 11.4%, primarily due to lower
operating costs. The company witnessed 9.2% decrease in cost of
sales and reported 4.2% decline in selling, general and
Net income from continuing operations was $165 million or $1.09
per share, compared with $203 million or $1.27 in the year-ago
The company exited the quarter with $2.44 billion in cash and
cash equivalents, up from $2.28 billion reported in the previous
quarter. Long-term debt balance (including current portion) stood
at $2.87 billion. Moreover, the company generated $548 million of
cash from operating activity, up from $529 million in the previous
quarter. Free cash flow came in at $288 million.
During the quarter, Computer Sciences repurchased shares worth
$151 million and paid $29 million as dividends. Moreover, the
company increased the dividend by 15% and subsequently authorized
$1.5 billion share repurchase program.
Fiscal 2015 Outlook
For fiscal 2015, Computer Sciences expects revenues to be flat
to up marginally on a year-over-year basis. The company's earnings
forecast is expected to range between $4.35 and $4.55 (mid-point
$4.45). The Zacks Consensus Estimate is pegged at $4.45 per share.
The company expects to generate free cash flow of approximately
$700 million in fiscal 2015. The company expects to reinvest $350
to $400 million in growth initiatives and cut costs by $450 to $500
million during the same time frame.
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 surpassed the
Zacks Consensus Estimate but the top line lagged the same. Although
the company's fiscal 2015 bottom-line guidance was modest, the
top-line forecast was not encouraging.
We believe that despite the company's operating segments
remained 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,
) 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'
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 more time
than expected which is a near-term headwind for the company.
Currently, Computer Sciences has a Zacks Rank #3 (Hold).
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