CSC gets closer to split

In its quarterly report issued yesterday, Computer Sciences Corp. reported that it is on track for splitting the company into two new entities, one focused on the U.S. public sector and the other on the commercial market.

The company also made two moves this week to bolster its commercial business with the announcement that it plans to acquired two companies – Fixnetix and Fruition Partners. Fixnetix is a provider of trading solutions in the banking and financial markets. Fruition Partners is a cloud-based service management solutions provider.

In its results for its first quarter of fiscal 2016, CSC saw its public sector business operating margins hold steady at 14.2 percent, down slightly from 14.8 percent a year earlier. Last quarter, adjusted operating margins were 14 percent, up from 11.2 percent for the same quarter in 2014. The company said improvement was driven by better contract performance and cost efficiencies.

Revenue fell by 6 percent, but most of that was due to do projects winding down and fewer task orders. There also was an extra week in the quarter. The company said if that week was taken out, revenue would only have dropped 2 percent.

While the numbers were not released, CSC's civilian business grew and partially offset declines in other parts of the business. Overall, the public sector business had $957 million in first quarter revenue, compared to $1.02 billion a year earlier.

The business also reported new business awards of $1 billion in the quarter.

The public sector business has a pipeline of $13.5 billion, of which $2.4 billion is for what Chairman and CEO Mike Lawrie called "next-generation services," which includes the cloud. During a call with analysts, he said that the company's cloud pipeline is up 58 percent over a year ago.

The public sector also has $5 billion in submitted proposals, which is $1.5 billion more than a year ago. Nearly two-thirds of that represents new work for CSC, he said.

The results for the public sector business led analysts at Raymond James to praise the company. The predicted that government sales should grow in the second half of fiscal 2016. CSC fiscal year usually ends around March 31.

“We continue to believe that [North American Public Sector] is undervalued as part of the consolidated entity,” Raymond James analysts Brian Gesuale and Charlie Castillo wrote.

Once CSC splits, there will be two publicly traded companies. The commercial-focused business will retain the CSC name, while the North American public sector company will be known as Computer Sciences Government Services Inc., or Computer Sciences GS for short.

Larry Prior will be the CEO of the government business, and Mike Lawrie will be chairman. Lawrie will retain his chairman and CEO titles over the commercial CSC business.