CSC's progress outshines its areas of decline
CEO declares turnaround is on track
- By Mark Hoover
- Nov 06, 2012
With its second quarter 2013 occurring in the midst of a turnaround, it is not surprising to see that Computer Sciences Corp.’s revenue numbers are down; however, with its quarterly earnings up, the company’s results might just be positive afterall.
The company's North American public sector saw declines in revenue and bookings, but its operating margin is on the rise.
The sector's revenue figure for the second quarter ended Sept. 30 was $1.38 billion, a 4 percent decrease from a year earlier. CSC pointed to Defense Department contract completions that occurred at the end of fiscal 2012 as being the reason for the decline.
Operating margin was 10.9 percent—a figure that the company said has increased at an annual rate due to the impact of a U.S. Claims settlement.
The sector’s bookings were reported at $1.1 billion in second quarter 2013, a decline from 2012’s second quarter. The drop is due to the uncertainty in government procurement, and the impact on business awards that goes with it, the company said.
Overall, the company saw decreases in total revenues and diluted earnings per share, and increases in operating margins, operating cash flow and free cash flow.
Diluted earnings per share for the quarter was 83 cents per share, and included a workforce restructuring charge of 25 cents per share, or $58 million. The second quarter last year had a loss per share of $18.56, which included a goodwill impairment charge of $18.21 per share, as well as a U.S. Claims settlement of $1.20 per share.
Mike Lawrie, CSC president and CEO, said that the company is raising its guidance for fiscal 2013 earnings per share, “to $2.30 to $2.50.”
Total revenues for the company in its second quarter 2013 were $3.85 billion, a 3 percent decrease from the previous year’s $3.97 billion, and a 1 percent decline in constant currency, CSC said.
Operating income was $298 million, and was compared with an operating loss in the year ago period.
“Operating margins improved across all three lines of business when compared with the prior year,” Lawrie said. Overall operating margin was 7.7 percent, a significant increase from both last year’s -1.9 percent, and first quarter 2013’s 4.6 percent.
Both operating cash flow and free cash flow rose from last year’s figures: operating cash flow was $444 million for this year's quarter, a $438 million improvement from last year. Free cash flow was $237 million, a $505 million improvement over last year's second quarter. CSC said that the reason behind its rise in free cash flow is the result of better contract management, cost takeout, and the benefit of the National Health Service Interim Agreement.
Additionally, CSC raised $700 million of senior unsecured notes and secured commitments for a new $250 million bank term loan, it said. Funds from these financings were used to redeem maturing debt in October 2012.
Ending cash and cash equivalents were $1.85 billion.
Commenting on the quarter, Lawrie said the results reflect the continuing progress that the company has been making on its contract management performance and cost takeout program.
He also said that the company’s offerings were strengthened through its acquisition of a software development company specializing in big data, analytics and advanced applications.
In the future, Lawrie said that the company is “taking steps to divest certain non-core assets such as a smaller business in Italy. There is much work to be completed but we are encouraged with the early results of our turnaround program,” he said.