Unisys Corporation has posted a net loss (including pension expenses) of $12.4 million or 28 cents per share in the third quarter of 2012 compared with a net income of $46.6 million or 99 cents per share in the previous quarter and a net income of $78.6 million, or $1.63 per diluted share in the year-ago quarter.
Excluding these charges and expenses, net income for the quarter came in at 85 cents per diluted share, easily beating the Zacks Consensus Estimate of 57 cents per share. Reported net income was down from $1.77 per diluted share earned in the year-earlier quarter and $1.41 per diluted share in the previous quarter.
The quarterly results were negatively impacted by lower services revenue, higher pension expense and debt reduction charges.
Net revenue stood at $877 million in the third quarter of 2012, down 14% from the year-ago quarter and 4.7% sequentially. Foreign currency fluctuations negatively affected revenues by 4% in the quarter. On a constant currency basis, revenue was down 10%.
Revenue in the third quarter was affected by softer demand in the services business particularly for shorter-term project business sold and billed within the quarter.
On a domestic basis, U.S. revenue plummeted 24% in the quarter with about half of the revenue decline credited to the company's U.S. Federal government business. International revenue declined 6% in the quarter.
Services revenues declined 15% year over year to $748.0 million. In the reported quarter, services orders were down but flat on a constant currency basis. As of September 30, 2012, services backlog was $5.1 billion, flat with the previous quarter but down 8% from December 31, 2011.
Technology revenue in the quarter declined 10% from the prior-year quarter to $129.4 million as growth in enterprise servers was offset by lower sales of other technology.
Gross margin came in at 24.9% versus 26.4% in the previous quarter and 27.9% in the year-ago quarter. Services gross profit margin declined to 19.9% from 21.6% in the year-ago quarter. Technology gross profit margin came in at 59.9% versus 57.4% in the year-ago quarter, driven by higher percentage of enterprise-class software and server sales in the quarter.
Operating margin came in at 7.0%, down from 8.6% in the previous quarter and 11.1% in the year-ago quarter.
Balance Sheet/Cash Flow
Cash provided by operating activities amounted to $16.9 million in the third quarter of 2012 compared with $93.8 million in the year-ago quarter. Capital expenditures incurred were $32 million in the third quarter of 2012 versus $29 million in the previous year quarter.
During the quarter, Unisys executed the previously announced actions to eliminate remaining high-interest debt as part of its debt reduction program. Unisys retired $293.7 million aggregate principal amount of 12.5% and 12.75% senior notes of debt by issuing $210 million of 6.25% senior notes due 2017.
At September 30, 2012, the company had a cash balance of $542 million and total debt of $211 million.
Unisys ended the quarter with cash and cash equivalents of $541.6 million, down from $659.7 million at the end of the previous quarter. Long-term debt was $210.1 million, down from $291.8 million at the end of the previous quarter.
Management was encouraged with the margin improvement in the company’s technology business, continuously improving service quality, and the early achievement of its debt reduction goal targeted for 2013.
The macroeconomic conditions continue to be challenging for Unisys, which competes with bigwigs like Accenture plc
(ACN - Analyst Report
) and Hewlett-Packard Company
(HPQ - Analyst Report
). Hence, we continue to have a Zacks #3 Rank on the stock, which translates into a short-term rating of Hold. In the long run, we have a Neutral recommendation on the stock.