CACI sees organic growth on the upswing

Add CACI International to the group of government services contractors that expect a busy summer and September period of contract awards with defense agencies as the main center of that activity and civilian somewhat behind.

During its fiscal year 2019 guidance call with investors, CACI CEO Ken Asbury echoed many of the comments his peers across industry made in the spring. Namely, the budget agreement Congress reached in March surprised everyone with spending cap increases for both defense and civilian agencies.

The budget being passed so late into the government’s fiscal year creates a crunch for agencies to get contracts funded before a likely continuing resolution in the fall ahead of the midterm elections. As Asbury hinted at Thursday, much of the expected award activity is foreshadowed by who was ready for an increase and who was not.

“The Department of Defense felt fairly confident that they would see an increase as a result of the administration's initial budget,” Asbury said. “We went through a process for a while where we thought that many of the civilian agencies were going to be bill payers for that. In fact, the initial (expectation) of the administration's budget sort of indicated some pretty wholesale reductions.

“Many of the civilian agencies were a little bit back on their heels with regard to how that -- those appropriations would come through and may not have been as prepared for that as the Department of Defense was.”

DOD has more well-developed processes and mechanisms in place to move funds around quickly and get them on contract, chief executives said during the spring round of earnings calls.

So how do civilian agencies allocate the added flush of money they were not prepared for and relatively less-developed mechanisms to move those funds? Asbury predicted they will likely fund indefinite-delivery, indefinite-quantity contract vehicles before the current federal fiscal year ends Sept. 30.

That is their way “to get that money to work,” Asbury said, “But it'll just happen at a slower pace.”

One potential headwind -- or boon depending on how one looks at it -- is the prospect of agencies simply opting to extend current contracts rather than award the recompete or brand new work. Many agencies chose to extend current contracts over last year's summer period amid overall budget uncertainty.

“It's our internal belief that there's just as much of a chance of the customer with increased funding and limited amount of time they have to spend it, that to go out in competitive procurement versus providing that scope and that funding on our existing contract may actually leave the government to continue to bridge,” CACI Chief Operating Officer John Mengucci said.

During the Thursday call, CACI also issued its initial fiscal year 2019 revenue outlook of $4.55 billion-$4.75 billion at organic sales growth of around 3 percent excluding acquisitions. The company’s fiscal calendar runs on a July-June basis.

Overall sales growth including acquired revenue should be at around 4.5 percent with earnings per share of $8.98-$9.38.

Investment bank Drexel Hamilton said in a Thursday research report that CACI’s targets for fiscal 2019 are “very achievable” and sees the company “gaining market share in new awards.”

Similarly, Cowen & Co. noted “bookings should be strong in Q4 and in the seasonal peak September quarter” thanks to elevated funding levels in the March deal. Those bookings would lay the foundation for CACI to realize revenue as it performs the work.

Wall Street welcomed the fiscal 2019 guidance Thursday as CACI’s stock climbed 8.7 percent to an all-time record close of $172.75. The shares dipped nominally during Friday morning trade.

CACI is holding to its fiscal 2018 sales outlook of around $4.45 billion to show 2.3 percent year-over-year growth.