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Unisys Corporation ((UIS - Analyst Report)) reported second-quarter 2014 adjusted earnings per share of 11 cents versus 91 cents in the prior-year quarter, significantly missing the Zacks Consensus Estimate of 40 cents. Adjusted net income came in at $6 million, plunging 87% from the prior-year figure of $46 million. Earnings were negatively impacted by declining revenues across the segments, specifically in the systems integration and infrastructure services businesses.
 
 

 

The company reported a GAAP net loss of $12.1 million or 24 cents per share compared with a net income of $20.4 million or 46 cents per share in the year-ago quarter. The substantial year-over-year decrease was attributable to a decline in revenues, along with charges related to $21.9 million of pension expense.
 
Total revenue declined 6.1% to $806.4 million, compared with $858.6 million in the prior-year quarter. The slump in revenues was due to lower sale of technology projects. While revenues from the U.S decreased 10%, international revenues slipped 3% year over year.
 
Segment Results
 
In the Services segment, revenues fell 3.6% year over year to $712.9 million, impacted by lower systems integration and infrastructure services revenues, partially offset by growth in outsourcing and core maintenance. Service orders showed significant improvement both sequentially and year over year, driven by growth in outsourcing orders. Total Services backlog at quarter-end was $4.7 billion. As a consequence of weaker revenues, gross profit margin for the segment declined to 16.8% from 18.2% a year ago.
 
Technology segment revenues dropped 21.4% from the year-ago quarter to $93.5 million due to lower sales of ClearPath enterprise software and servers. Gross profit margin for the segment decreased to 50.2% from 59.4% in the year-ago quarter. 
 
Balance Sheet/Cash Flow
 
Cash generated by operating activities totaled $3.3 million in the second quarter of 2014 compared with $16.1 million in the prior-year quarter. The company incurred capital expenditure of $45 million in the reported quarter versus $38 million in the year-earlier quarter. Free cash flow before pension contributions declined to $6.1 million from $12.6 million in the year-ago quarter.
 
At quarter end, Unisys had a long-term debt burden of $210 million, with cash and cash equivalents of $574 million. During the quarter, the company returned $13.1 million to shareholders through repurchase of common stock. The company has repurchased $25.7 million of common shares in total under a $50 million share repurchase program that expires on December 31, 2014.
 
Going Forward 
 
Management expects to face persistent challenges in the coming quarters as it grapples with the softness in some of its product lines. However, the company is encouraged by its improved sequential performance and is hopeful of achieving better results in the second half of the year. Within the Technology segment, Unisys expects strength in ClearPath sales as well as increased market traction in its Stealth cybersecurity and Forward! server products, in the near term.
 
The information technology industry is presently going through a transition phase with unsettling trends in cloud mobility and big data. Accordingly, Unisys is rationalizing its services and solution portfolio and is shifting its offerings to cloud-based and software-as-a-service delivery models. We expect the company to continue with its cost-control initiatives and put greater effort towards sales growth, as it overcomes the operational weaknesses.
 
Unisys currently has a Zacks Rank #3 (Hold). Other stocks that look promising include Barracuda Networks, Inc. ((CUDA - Snapshot Report)), Infosys Ltd. ((INFY - Analyst Report)) and Science Applications International Corporation ((SAIC - Snapshot Report)), each holding a Zacks Rank #2 (Buy).

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