A month has gone by since the last earnings report for DXC Technology Company. (
DXC Quick Quote DXC - Free Report) . Shares have added about 8.6% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is DXC Technology Company. due for a pullback? 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 catalysts.
DXC Q1 Earnings Miss Estimates, Cuts Guidance
DXC reported lower-than-expected results for the first quarter of fiscal 2024. The IT services and consulting company reported first-quarter non-GAAP earnings of 63 cents per share, which came in way lower than the Zacks Consensus Estimate of 82 cents.
The bottom line decreased 16% from the prior-year quarter’s earnings of 75 cents per share. The year-over-year decline was primarily due to lower revenues and higher-than-expected tax expenses, partially offset by a lower share count.
DXC reported revenues of $3.45 billion, which fell short of the consensus mark of $3.56 billion and declined 7% year over year. The top line was negatively impacted by a slowdown in client expenditures. The company noted that several customers have either stopped or pushed their orders in the second half of fiscal 2024 amid the current uncertain macroeconomic environment.
DXC’s bookings in the fiscal first quarter were $3.1 billion, reflecting a book-to-bill ratio of 0.89. The trailing 12-month book-to-bill ratio for the company was 1.03 at the first-quarter fiscal 2024-end. Our estimate for bookings and the book-to-bill ratio was pegged at $3.8 billion and 1.06, respectively.
Segment-wise, revenues from Global Business Services (“GBS”) decreased 3.1% on a year-over-year basis to $1.7 billion. Our estimate for the GBS segment’s first-quarter revenues was pegged at $1.73 billion.
However, on an organic basis, the division’s revenues improved 3.3% year over year. The upside was primarily aided by the strong performance of Analytics & Engineering and Insurance Software & BPS offerings, where revenues increased 8.8% and 5.1%, respectively, on an organic basis. However, the GBS segment’s Applications offerings registered a year-over-year organic revenue decline of 0.7%.
Global Infrastructure Services (“GIS”) revenues were $1.74 billion in the fiscal first quarter, down 10.6% year over year. Our estimate for the GIS segment’s first-quarter revenues was pegged at $1.85 billion.
On an organic basis, the division’s revenues decreased 9.9% year over year, which was higher than management’s expectations. The GIS segment’s performance was negatively impacted by a slowdown in customer expenditures, mainly in the resale of IT equipment, such as PCs, networking gear and servers and project work.
Under the GIS division, revenues from Cloud Infrastructure & ITO and Modern Workplace offerings declined 12.7% and 5%, respectively, on an organic basis. However, it registered 6.8% year-over-year organic revenue growth at the Security offering.
The company’s adjusted operating income declined to $224 million in the first quarter from $259 million in the year-ago quarter. The adjusted operating margin contracted to 6.5% from 7%.
Balance Sheet and Cash Flow
DXC exited the fiscal first quarter with $1.58 billion in cash and cash equivalents compared with the $1.86 billion witnessed in the previous quarter. The long-term debt balance (net of current maturities) remained flat at $3.9 billion as of Jun 30, 2023 compared with the previous quarter.
In the first quarter, DXC generated operating cash flow of $127 million and had a negative free cash flow of $75 million. During the quarter, it repurchased 11 million shares for a total consideration of $280 million. The company stated that it is on track to complete the $1 billion share repurchase program in fiscal 2024. DXC had initiated the $1 billion share buyback program in April 2024.
DXC lowered its guidance for the full-fiscal 2024. For fiscal 2024, DXC now estimates revenues in the band of $13.88-$14.03 billion, down from its previous forecast in the range of $14.40-$14.55 billion. It now projects the adjusted EBIT margin for the fiscal in the range of 7%-7.5% instead of 8%-8.5% anticipated previously. The company also lowered its adjusted EPS forecast to the $3.15-$3.40 range from the $3.80-$4.05 range projected earlier.
DXC also initiated guidance for the second quarter. For the quarter, the company anticipates revenues between $3.43 billion and $3.46 billion. The adjusted EBIT margin is expected in the range of 6.5. DXC projects adjusted earnings between 65 cents and 70 cents per share for the second quarter.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
The consensus estimate has shifted -25.71% due to these changes.
At this time, DXC Technology Company. has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. However, the stock was allocated a grade of A on the value side, putting it in the top quintile 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.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise DXC Technology Company. has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.
Performance of an Industry Player
DXC Technology Company. is part of the Zacks Computers - IT Services industry. Over the past month, Check Point Software (
CHKP Quick Quote CHKP - Free Report) , a stock from the same industry, has gained 2%. The company reported its results for the quarter ended June 2023 more than a month ago.
Check Point reported revenues of $588.7 million in the last reported quarter, representing a year-over-year change of +3.1%. EPS of $2 for the same period compares with $1.64 a year ago.
For the current quarter, Check Point is expected to post earnings of $2.02 per share, indicating a change of +14.1% from the year-ago quarter. The Zacks Consensus Estimate has changed +0.4% over the last 30 days.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #2 (Buy) for Check Point. Also, the stock has a VGM Score of D.