Quarterly reports: Firms hit their targets

With the public federal information technologyservices firms having reported results for the quarterended Dec. 31, there have been some noteworthytrends. Contract awards have generally been lighterthan last quarter, given strong awards from the previous quarter.However, I anticipate better contract award activity in the next fewquarters now that the fiscal 2008 budgets have been passed.The president released his fiscal 2009budget request to Congress, and it was modestlybetter than expected for federal IT servicesfirms. The IT budget request representsan increase of 3.8 percent, with 2.3 percentfor defense IT spending and 5.2 percent forcivilian-agency IT spending.The Office of Management and Budgetalso released final enacted 2008 federal ITspending numbers, which showed total 2008federal IT spending up 4.2 percent, defenseup 2.0 percent and civilian-agency IT spendingup 6.3 percent. As expected, IT continuesto lose budget share to overall fiscal 2009defense spending, although the pace is slowingas overall defense spending growth slows.CACI International Inc. reported earningsper share (EPS) of 63 cents for the quarterended Dec. 31, in linewith investor expectations,and organic growthof 11 percent. Its operatingmargin of 6.6 percentwas down from 7.8 percent in the year-agoperiod, and contract awards were down 10percent compared to a year ago. SRAInternational Inc. reported EPS of 30 cents forthe quarter, a penny ahead of investor expectations,and organic growth of 3 percent. Itsoperating margin of 7.8 percent increased from6.9 percent in the year-ago period, and contractawards were up 17 percent year-over-year.Stanley reported EPS of 29 cents for thequarter, in line with investor expectations,and organic growth of 34 percent. Its operatingmargin of 8.3 percent increased from 3percent in the prior period, which included acharge, and contract awards were down 60percent year-over-year. SI International Inc.reported EPS of 39 cents for the quarter, inline with investor estimates, and organicgrowth of 7 percent. Its operating margin of7.8 percent was down from 9.6 percent inthe previous period, and contract awardswere down 25 percent from a year ago.NCI Inc. had solid results, with 11.5 percentorganic revenue growth and EPS of 25cents, a penny higher than investor expectations.Its operating profit margin expandedto 7.4 percent from 7 percent a year ago, andcontract wins were up to $122 million from$77 million a year ago.ManTech International Corp. had themost surprising report, showing better-than-expectedgrowth and margins, although contractawards were lower year-over-year.ManTech reported preliminary 2007 EPS of61 cents for the quarter that ended Dec.31, ahead of investor expectations of 55cents, and organic growth of 28 percent.Its operating margin of 8.6 percent wasup from 7.7 percent in the year-ago period,and contract awards were down 33percent year-over-year.Several companies suffered 10 percentor greater drops in their stock prices followingtheir fourth-quarter 2007 earningsreports as investors expected better outlooks.Investors began rotating into thisgroup last August ? when the subprimecrunch and economic slowdown becamemore evident ? as a way to reduce exposureto these segments. Unfortunately, it appears alot of these new investors had unrealisticgrowth expectations. As a result, after thepublic federal IT services firm stocks were up29 percent last year,they are now down8 percent so far thisyear.