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CACI International Inc. (CACI - Analyst Report) reported first-quarter fiscal 2014 (ended Sep 30, 2013) earnings of $33.0 million or $1.33 per share, down from $35.7 million or $1.49 a share in the year-earlier quarter. The year-over-year decline in earnings was primarily attributable to the fall in top line. However, the reported earnings well exceeded the Zacks Consensus Estimate of $1.25.

On a non-GAAP basis, adjusted earnings in the reported quarter stood at $1.80 per share versus $1.98 in the year-ago quarter.

Quarter Details

Continued uncertainty related to budgetary constraints and sequestration dragged the quarterly revenues down by 7.2% year over year to $864.3 million. The revenues were also adversely affected by a reduction of material purchases and subcontract labor resulting from the drawdown in Southwest Asia. The quarterly revenues missed the Zacks Consensus Estimate of $879 million.  

Contract funding orders aggregated $1.3 billion in the quarter, bringing the tally for total backlog at quarter-end to $7.8 billion with funded backlog at $2.1 billion.

In terms of customer mix, the Department of Defense accounted for about 71.5% of total revenue in the reported quarter. Federal Civilian Agencies contributed about 22.7%, while Commercial and other customers accounted for 5.8% of total revenue.

Operating income stood at $61.2 million in the reported quarter versus $64.7 million in the year-ago quarter, a year-over-year decrease of 5.5% primarily due to a $7 million decline on a fixed-price contract. Earnings before interest, taxes, depreciation and amortization (EBITDA) stood at $74.2 million versus $78.1 million in the year-ago quarter.

CACI International received $1.8 billion worth of contract awards in the quarter. During the reported quarter, CACI International procured awards in all 10 markets with about one-third of them being new businesses.

Balance Sheet and Cash Flows

The company ended the quarter with cash and cash equivalents of $102.7 million. Long-term debt (net of current portion) totaled $319.9 million.

Net cash provided by operating activities during the quarter aggregated $27.3 million versus $71.3 million in the prior-year period.

Subsequent Acquisition

Subsequent to the quarter-end, CACI International inked a definitive agreement to acquire Six3 Systems, Inc. for $820 million in cash in one of the largest transactions of its kind in its history. With approximately 1,600 employees and expected revenues of $470 million in 2013, the acquisition expands CACI International’s addressable market by approximately $15 billion. Furthermore, Six3 Systems adds distinctive cyberspace, C4ISR (Command, Control, Communications, Computers, Intelligence, Surveillance and Reconnaissance), and intelligence capabilities to CACI International solutions and services and augments its customer base. CACI International expects the acquisition to be at least 5% and 10% accretive to GAAP and adjusted earnings per share, respectively, for calendar year 2014.

Outlook Reiterated

The company reiterated its guidance for fiscal 2014. The outlook is derived at by factoring the risks stemming from the challenging macroeconomic environment and does not take into account the Six3 Systems acquisition. Moving ahead, CACI International expects to diligently focus on its operating plans to reward its shareholders with attractive risk-adjusted returns.

For fiscal 2014, CACI International expects revenues to be in the range of $3.5 billion to $3.7 billion with earnings of $142 million to $152 million or $5.70 to $6.10 per share. Operating cash flow is expected to be approximately $225 million without assuming any impact of future acquisitions.

CACI International intends to drive operational excellence by intensively focusing on its organic and inorganic growth strategy and strengthening its existing customer relationships while building newer ones. In addition, the company anticipates to significantly benefit from its cost-reduction program. CACI International also remains focused on its strategy to grow in larger markets, drive operational excellence, and leverage mergers and acquisitions to further increase its market share and create long-term value for its shareholders.

CACI International currently has a Zacks Rank #4 (Sell). Other stocks that look promising and are worth considering in the industry are Edgewater Technology Inc. , Computer Sciences Corporation (CSC - Analyst Report) and iGATE Corporation (IGTE - Snapshot Report), each carrying a Zacks Rank #2 (Buy).

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