Booz Allen expects quick bounce back despite shutdown hit

Like so many other government services contractors, Booz Allen Hamilton saw some disruption to its revenue and cash situation during the five-week partial government shutdown that closed many civilian agencies.

Booz Allen executives quantified some of that impact Friday during their fiscal third quarter earnings call: $20 million in revenue for the month of January, and possibly $100 million in operating cash pushed into its next fiscal year starting May 1.

While unsure about whether the revenue can be made up, they are confident cash collections will catch up on as the previously shuttered agencies work through a backlog of unpaid invoices.

The temporary disruption did not stop Booz Allen from raising guidance for the current fiscal year. They now see revenue growth of 7-8 percent for the year to around $6.6 billion, versus the prior 6-8 percent outlook even after including the shutdown impact. They also now see earnings per share of $2.65-$2.75 compared to the previous $2.55-$2.65 guide.

Wall Street is rewarding Booz Allen's stock with a 5-percent jump in afternoon trading.

Booz Allen’s overall optimism owes to the fact that much of its core business operated as normal during the shutdown. As CEO Horacio Rozanski pointed out to analysts, defense and many intelligence agencies remained open: that makes up for roughly two-thirds of Booz Allen’s business.

Also open were the Health and Human Services, Energy, Veterans Affairs and Labor departments plus other independent agencies. Civilian agency revenue were 26.7 percent of overall sales in the company’s last fiscal year, according to regulatory filings.

That said, Rozanski and certainly other chief executives in the market do not want to see agencies close again on Feb. 15 if a new spending deal is not reached.

“We'd like to see an agreement in Congress that goes frankly ideally through the next election not just through the next fiscal year,” Rozanski told analysts. “And I remain optimistic that will take place.”

There has been a consensus of a blend of optimism and pessimism in this week’s round of earnings calls from government contractors. Chief executives have largely said they expect increases in defense funding to continue. Civilian budgets are another story given that the latter is the current point of disagreement between a divided Congress and the Trump administration.

But aside from the fact that once-shuttered agencies could close again on Feb. 15, the specter of spending caps on defense and nondefense stemming from the Budget Control Act of 2011 could come back into play this fall without a new spending deal. Northrop Grumman CEO Kathy Warden reminded investors of that fact Thursday.

Booz Allen and its government market peers do have experience in handling shutdowns, however, given the fact that this is the third one in five years including the one-day closure last January and a 16-day full shutdown six years ago.

“We don’t look forward to it. We're certainly not interested in seeing it. But when it comes, we know what to do, we know how to do it and we know how to succeed in both great markets and more turbulent ones,” Rozanski said.

Company employees whose federal agency clients were closed shifted to training, bid and proposal work, and other internal activities as they waited for the shutdown to end.