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CSC Mixed on Top, Bottom Lines
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Computer Sciences Corporation (CSC - Analyst Report) reported first quarter 2010 EPS of $0.91, exceeding the Zacks Consensus Estimate of $0.90, while revenue of $3.94 billion was below the Zacks Consensus of $4.07 billion.
Revenue
The company’s first quarter 2011 revenue was up 1.1% compared to the year-ago quarter, driven by strength across all segments except Business Solutions & Services.
North American Public Sector (NPS) revenue was $1.55 billion, up 2.2% compared to the year-ago quarter. Managed Services Sector (MSS) revenue was $1.60 billion, up 2.2% from the year-ago quarter. Business Solutions and Services (BSS) revenue was $0.82 billion, down 2.0% compared to the year-ago quarter.
New Business
The company won $3.2 billion worth of new business awards in the first quarter. Of the three lines of business, NPS accounted for $1.2 billion of new business wins, BSS $0.8 billion and MSS $1.2 billion.
Operating Results
CSC recorded an operating margin of 7.13%, up 32 basis points from 6.81% reported in the year-ago quarter. The margin was negatively impacted by the increase in the cost of services, offset to a considerable extent by the increase in revenue.
Computer Sciences reported net income attributable to the company’s shareholders of $143.0 million, which was down 9.2% from $131.0 million reported in the year-ago quarter. The first quarter EPS was $0.91, up from $0.85 reported in the year-ago quarter.
Balance Sheet
CSC used $60.0 million of operating cash flow, which improved by $237.0 million from the previous year, while the free cash flow was a negative of $318.0 million. The company exited the quarter with $2.43 billion in cash and cash equivalents. CSC has a total debt balance of $3.73 billion and its debt-to-capitalization ratio declined by 30 basis points in the last quarter to 36.8%.
Guidance
The company provided its guidance for fiscal year 2011. Accordingly, Computer Sciences expects new business awards in excess of $18 billion, revenue in the range of $16.8 to $17.2 billion, operating margin of between 9% and 9.25% and EPS in the range of $5.30 - $5.40. Free cash flow is expected to be equal to or greater than 90% of net income.
Our Recommendation
The company has a steady flow of new business, especially in the government vertical and is financially sound. On the other hand, we are a bit concerned about the intense competition in the IT and cloud computing space from both big and small players such as Accenture (ACN - Snapshot Report) and Hewlett-Packard (HPQ - Analyst Report).
We currently have a long-term Neutral recommendation on the stock, and the Zacks #3 Rank allotted to the shares indicates that we do not expect significant variation in prices over the next 1-3 months.
Revenue
The company’s first quarter 2011 revenue was up 1.1% compared to the year-ago quarter, driven by strength across all segments except Business Solutions & Services.
North American Public Sector (NPS) revenue was $1.55 billion, up 2.2% compared to the year-ago quarter. Managed Services Sector (MSS) revenue was $1.60 billion, up 2.2% from the year-ago quarter. Business Solutions and Services (BSS) revenue was $0.82 billion, down 2.0% compared to the year-ago quarter.
New Business
The company won $3.2 billion worth of new business awards in the first quarter. Of the three lines of business, NPS accounted for $1.2 billion of new business wins, BSS $0.8 billion and MSS $1.2 billion.
Operating Results
CSC recorded an operating margin of 7.13%, up 32 basis points from 6.81% reported in the year-ago quarter. The margin was negatively impacted by the increase in the cost of services, offset to a considerable extent by the increase in revenue.
Computer Sciences reported net income attributable to the company’s shareholders of $143.0 million, which was down 9.2% from $131.0 million reported in the year-ago quarter. The first quarter EPS was $0.91, up from $0.85 reported in the year-ago quarter.
Balance Sheet
CSC used $60.0 million of operating cash flow, which improved by $237.0 million from the previous year, while the free cash flow was a negative of $318.0 million. The company exited the quarter with $2.43 billion in cash and cash equivalents. CSC has a total debt balance of $3.73 billion and its debt-to-capitalization ratio declined by 30 basis points in the last quarter to 36.8%.
Guidance
The company provided its guidance for fiscal year 2011. Accordingly, Computer Sciences expects new business awards in excess of $18 billion, revenue in the range of $16.8 to $17.2 billion, operating margin of between 9% and 9.25% and EPS in the range of $5.30 - $5.40. Free cash flow is expected to be equal to or greater than 90% of net income.
Our Recommendation
The company has a steady flow of new business, especially in the government vertical and is financially sound. On the other hand, we are a bit concerned about the intense competition in the IT and cloud computing space from both big and small players such as Accenture (ACN - Snapshot Report) and Hewlett-Packard (HPQ - Analyst Report).
We currently have a long-term Neutral recommendation on the stock, and the Zacks #3 Rank allotted to the shares indicates that we do not expect significant variation in prices over the next 1-3 months.
Read the full analyst report on CSC
Read the full analyst report on ACN
Read the full analyst report on HPQ
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