Computer Sciences Corporation
) reported third quarter 2013 earnings per share of 77 cents, way
ahead of the Zacks Consensus Estimate of 63 cents. Excellent cost
management supported the earnings beat.
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The company reported third quarter revenues of $3.78 billion, up
2.5% year over year. Weak performances of the North American
Public (NPS) segment and Managed Services Sector (MSS) were
offset by solid growth in Business Solutions & Services
Segment wise, NPS sector revenues were $1.34 in the quarter or
approximately 35.4% of total company revenues. Segment revenues
declined 2.8% on a year-over-year basis and 2.5% on a sequential
basis. Modest contribution from Department of Defense contracts
was more than offset by lower contribution from Civil agencies'
contracts. NPS signed $0.7 billion of new business during the
Managed Services Sector's revenue stood at $1.62 billion, which
is around 42.8% of total revenues generated by the company.
Managed Services Sector revenues fell 3.0% on a year-over-year
basis but grew 2.3% from the prior quarter. New bookings were
Business Solutions & Services revenues were $853.0 million in
the quarter, representing 22.6% of the total company revenues.
Segment revenues jumped 28.7% on a year-over-year basis. The
improvement was attributable to favorable comparison arising due
to lower National Health Service revenues in the year-ago
quarter. New bookings for BSS were $0.9 billion.
The company posted operating profit of $212.0 million, rebounding
from an operating loss of $1.41 billion reported in the year-ago
quarter. The operating profit margin for the quarter was 5.6%
compared with loss margin of 38.3% in the year-ago quarter. The
improvement was mainly due to margin expansion across all the
business segments reflecting ongoing cost reduction initiatives.
Management's cost optimization plans included efficient contract
management, workforce optimization, supply chain, and demand
management, and overhead reductions throughout the enterprise.
Reported net income from continuing operations was $120.0 million
or 77 cents per share, compared with a loss of $1.42 billion or
$9.16 in the year-ago quarter.
The company exited the quarter with $2.20 billion in cash and
cash equivalents, up from $1.85 billion reported in the previous
quarter. Long-term debt balance remained unchanged at $2.40
billion. Operating cash flow decreased to $413.0 million from
$444.0 million in the previous year. Computer Sciences generated
free cash flow of $245.0 million in the quarter.
The company bought back 1.97 million common stock worth $77.0
million and paid $31.0 million by way of dividend.
Management asserts that the company has achieved cost
optimization well ahead of its target. These measures are
expected to drive $500-$600 million cost reduction in 2013. Also,
the company is optimistic about cost savings of $1.0-$1.2 billion
Banking on the cost reduction plan, which is running on track,
Computer Sciences now expects 2013 earnings from continuing
operations in the range of $2.50-$2.70 (up from previously
expected range of $2.30-$2.50).
The company also stated that the divestiture of its Credit
Solutions business to
) and certain other non-core businesses has generated a fund,
which will be used to return shareholder value through a share
repurchase program and contribution to pension fund.
Computer Sciences reported decent third quarter 2013 results,
with the bottom line beating the Zacks Consensus Estimate
comprehensively and revenues growing marginally on a
The operating performance of the company improved substantially
on a year-over-year basis. But new bookings growth was not
encouraging enough. However, raised 2013 EPS guidance, cost
containment program and a continuous share buyback program are
Intense competition in the IT and cloud computing space from both
small and big players such as
) and a challenging macroeconomic condition in Europe coupled
with strained federal budgets may weigh on the stock.
Currently, Computer Sciences has a Zacks Rank #2 (Buy).