Leidos eyes divestitures, layoffs

Leidos has had its struggles since it spun off its IT business and dropped its historic SAIC name and some tough decisions lie ahead for the company.

While company officials say that its most recent quarterly results are positive – CEO Roger Krone called them a “step in the right direction” – the company is still perhaps six months from completing its turnaround.

“We are still a quarter or two from where we need to be,” Krone said during a call with analysts.

But Krone, who joined the company as CEO five months ago, has several priorities, among them streamlining operations and divesting unwanted businesses.

While specifics were sparse, Krone said several divestitures are in the works.

The company is in discussions with buyers who are interested in some business units, and those transactions could happen quickly, while other divestiture targets will take more time, he said.

“I have identified a subset of our portfolio that is not a natural fit for the business model we aspire to,” Krone said. “My objective is to methodically extract the maximum value of these components over time.”

Krone emphasized the divestitures are relatively small and do not represent a “change in complexion” for Leidos.

“We are very comfortable with the markets we are in,” he said. “This is more portfolio tweaking.”

He's eyeing business units that, for example, take more management time than is justified by their financial return.

"I don't want my team spending a lot of time on a small business just because it is in a difficult market," he said.

The company has already sold two small units in recent months.

While he never used the term layoffs or staff reductions, all the code words were there:

• Reducing layers
• Streamlining
• Reducing indirect costs

He cautioned the Wall Street analysts that the moves won’t immediately have an impact on the company’s profit and loss statement but will position Leidos for growth in the longer term.

Another priority for Krone is improving the company’s business development activities, and he touted the hiring last month of Michael Leiter as executive vice president of BD. Leiter has a strong background in the intelligence market and is the former director of the National Counterterrorism Center.

“He will be a powerful catalyst for us,” Krone said.

While the company saw its revenue in the quarter drop 10 percent to $1.3 billion from $1.4 billion for the same quarter a year ago, Krone said cash flow remains strong, and the bottom line has improved.

He said both are good signs that the company is headed in the right direction after a rough first year following the split with its IT business, which retained the SAIC name.