Unisys Easily Beats

Unisys Corporation (UIS - Analyst Report) reported revenues of $1.02 billion in the third quarter, up 6% year over year. Foreign currency fluctuations had a six percentage-point positive impact on revenue in the quarter.

Total revenues grew 6% despite a decline in the company’s U.S. federal business. Excluding the U.S. Federal business, overall revenue grew 14% year over year.  Management stated that strong ClearPath sales, continued growth in the non-U.S. Federal IT outsourcing business, and higher sales of industry solutions within system integration business more than offset a decline in the U.S. Federal business where market conditions remain challenging.

On a geographical basis, Unisys saw revenue growth in all regions except for Latin America outside of Brazil. 

Services revenues increased 2% year over year despite lower revenue in the company's U.S. Federal business. Excluding the U.S. Federal business, services revenue grew 12% from the year-ago quarter fueled by growth in IT outsourcing revenue and growth in systems integration revenue in the quarter. As of September 30, 2011, services backlog was $5.3 billion, down 8% from a year ago. Services orders showed a low double-digit year-over-year decline in the quarter reflecting lower outsourcing and U.S. Federal orders.

Technology revenues grew 36% from the year-ago quarter driven by significantly higher sales of ClearPath software and servers.

Gross margin increased to 27.9% from 24.7% in the year-ago quarter and 22.8% in the previous quarter primarily reflecting higher sales of ClearPath software and servers and a more profitable mix of services revenue. Services gross profit margin improved to 21.6% from 20.6% a year ago.

Operating margin improved to 11.1% from 7.9% in the year-ago quarter. Services operating margin improved to 8.7% from 7.1% a year ago.

Net income came in at $78.6 million or $1.63 per share in the third quarter compared with a net loss of $11.6 million or $0.27 per share in the previous quarter and a net income of $28.3 million or $0.65 in the year-ago quarter. The results easily beat the Zacks Consensus Estimate of $0.70.

Unisys generated $94 million of cash from operations in the thid quarter of 2011, down from $127 million in the year-ago quarter. Capital expenditures in the third quarter of 2011 declined to $29 million compared with $46 million in the year-ago quarter.

The company ended the quarter with cash and equivalents of $667.3 million, up from $625.0 million at the end of the previous quarter. Unisys ended the quarter with a long-term debt of $444.4 million, down from $447.4 million at the end of the previous quarter. Approximately $65.9 million of notes will be redeemed in accordance with the provisions of the notes.

We continue to maintain an Underperform recommendation on the company. Our Underperform recommendation is supported by a Zacks #4 Rank on the stock which translates into a short-term rating of Sell.

Read the full analyst report on UIS