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DXC Technology Company. (DXC) Down 4.5% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for DXC Technology Company. (DXC - Free Report) . Shares have lost about 4.5% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is DXC Technology Company. due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

DXC Technology Q3 Earnings Beat Estimates, Revenues Miss

DXC reported mixed results for the third quarter of fiscal 2023, wherein adjusted earnings surpassed the Zacks Consensus Estimate, while revenues fell short of the same. The company reported third-quarter non-GAAP earnings of 95 cents per share, beating the Zacks Consensus Estimate of earnings of 84 cents.

The bottom line increased 3.3% from the prior-year quarter’s earnings of 92 cents per share. The year-over-year improvement was primarily driven by lower interest expenses and a reduction in share counts, partially offset by lower sales volumes and foreign exchange headwinds.

DXC reported revenues of $3.57 billion, which marginally fell short of the consensus mark of $3.58 billion and declined 12.8% year over year. The top line was negatively impacted by a tough year-over-year comparison related to the lower resale, a perpetual license sale in the year-ago quarter, and lower-than-anticipated levels of project revenues this year.

Quarterly Details

DXC’s bookings for the fiscal third quarter were $4.78 billion, reflecting the book-to-bill ratio of 1.34. The trailing 12-month book-to-bill ratio for the company was 1.06 at the third-quarter fiscal 2023 end.

Segment-wise, revenues from Global Business Services decreased 10.7% on a year-over-year basis to $1.74 billion. On an organic basis, the division’s revenues improved 0.2% year over year. The upside was primarily aided by the strong performance of Analytics and Engineering offerings, where revenues increased 11.7% on an organic basis.

Global Infrastructure Services revenues were $1.83 billion in the fiscal third quarter, down 14.7% year over year. On an organic basis, the division’s revenues decreased 7.4% year over year. The adjusted EBIT margin was 8.7%, flat year over year, expanding 120 bps sequentially.

On its earnings call, DXC stated that it is making progress in achieving its target of reducing the cost by $500 million in the ongoing fiscal through its cost-optimization efforts. Under its ongoing cost-optimization initiatives, the company is focusing on four cost levers — contractor conversion, scaling its global innovation and delivery centers, real estate and automation through Platform X.

Balance Sheet and Cash Flow

DXC exited the fiscal third quarter with $2.09 billion in cash and cash equivalents compared with the $2.26 billion witnessed in the previous quarter. The long-term debt balance (net of current maturities) increased to $3.85 billion as of Dec 31, 2022 from $3.7 billion as of Sep 30, 2022.

In the third quarter, DXC generated operating cash flow of $625 million and free cash flow of $463 million. In the first nine months of fiscal 2023, the company generated operating and free cash flow of $1 billion and $468 million, respectively.

In the first three quarters of fiscal 2023, DXC repurchased shares worth $325 million, utilizing $600 million under its current share repurchase authorization of $1 billion.

Guidance

The company lowered its fiscal 2023 guidance. DXC now estimates revenues in the band of $14.46-$14.47 billion, down from its earlier guidance range of $14.4-$14.54 billion. It also narrowed the adjusted earnings guidance range to $3.45-$3.50 per share from the previous forecast of $3.45-$3.75 per share.

For the fourth quarter of fiscal 2023, the company anticipates revenues between $3.615 billion and $3.635 billion. The adjusted EBIT margin is expected in the range of 8.7%-9.2%. DXC projects adjusted earnings between $1 and $1.05 per share.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review.

The consensus estimate has shifted -10.22% due to these changes.

VGM Scores

At this time, DXC Technology Company. has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, DXC Technology Company. has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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