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DXC Beats on Q4 Earnings, Shares Fall on Weak FY25 Guidance
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DXC Technology Company (DXC - Free Report) reported better-than-expected results for the fourth quarter of fiscal 2024. The IT services and consulting company posted fourth-quarter non-GAAP earnings of 97 cents per share, which beat the Zacks Consensus Estimate of 83 cents.
However, the bottom line decreased 5% from the prior-year quarter’s earnings of $1.02 per share. The year-over-year decline was primarily due to lower revenues, increased interest expenses and a higher income tax rate, partially offset by a lower share count.
DXC reported revenues of $3.39 billion, which surpassed the consensus mark of $3.37 billion. However, the top line declined 5.7% year over year mainly due to a decrease in revenues across the Global Infrastructure Services (“GIS”) segment’s Modern Workplace and Cloud Infrastructure & ITO businesses. Additionally, we believe that the top line could have been negatively impacted by a slowdown in client expenditure in the current uncertain macroeconomic environment.
Despite reporting better-than-expected fiscal fourth-quarter results, shares of DXC Technology plunged more than 22% during Thursday’s extended trading session, as the company’s revenue and earnings guidance for first-quarter and fiscal 2025 both fell short of the Zacks Consensus Estimate. The company hinted that cautious spending by clients amid a challenging macroeconomic environment will hurt its fiscal 2025 top-line performance.
DXC Technology Company. Price, Consensus and EPS Surprise
DXC’s bookings in the fiscal fourth quarter were $3.1 billion, reflecting a book-to-bill ratio of 0.94. The trailing 12-month bookings and book-to-bill ratio for the company were $12.4 billion and 0.93 at the fiscal 2024-end.
Segment-wise, revenues from Global Business Services (“GBS”) declined 2.2% on a year-over-year basis to $1.71 billion. On an organic basis, the division’s revenues decreased 0.3% year over year. The downside was primarily due to lower revenues in Analytics and Engineering and Applications businesses, partially offset by continued growth in Insurance.
GIS revenues were $1.67 billion in the fiscal fourth quarter, down 9% year over year. On an organic basis, the division’s revenues decreased 9.3% year over year. The GIS division witnessed revenue declines across all three business offerings — Cloud Infrastructure & ITO, Modern Workplace and Security.
The company’s non-GAAP gross profit declined 6% to $798 million from $849 million in the year-ago quarter mainly due to lower revenues. However, the non-GAAP gross margin remained flat on a year-over-year basis at 23.6%.
DXC’s non-GAAP operating income declined to $283 million in the fiscal fourth quarter from $320 million in the year-ago quarter. The adjusted operating margin contracted to 50 bps to 8.4% mainly due to lower non-cash pension income and a reduction in gain on asset sales.
Balance Sheet & Cash Flow
DXC exited the fiscal fourth quarter with $1.22 billion in cash and cash equivalents compared with $1.69 billion in the previous quarter. The long-term debt balance (net of current maturities) was $3.82 billion as of Mar 31, 2024, up from $3.88 billion as of Dec 31, 2023.
In the fiscal fourth quarter, DXC generated an operating cash flow of $280 million and a free cash flow of $155 million. In the quarter, it bought back shares worth $138 million.
During fiscal 2024, DXC generated an operating cash flow and a free cash flow of $1.36 billion and $756 million, respectively. It returned $883 million to shareholders through share repurchases during the period.
FY25 Guidance
DXC initiated the guidance for the first quarter and fiscal 2025. For the fiscal first quarter, the company anticipates revenues between $3.1 billion and $3.15 billion. The adjusted EBIT margin is expected to be 5.5-6%. DXC projects adjusted earnings per share between 55 cents and 60 cents for the fiscal first quarter. The Zacks Consensus Estimate for fiscal first-quarter revenues and earnings is pegged at $3.25 billion and 80 cents per share, respectively.
For fiscal 2025, DXC estimates revenues of $12.67-$12.95 billion. The company projects the adjusted EBIT margin for the fiscal to be 6-7%. It forecasts adjusted EPS between $2.50 and $3. The consensus mark for revenues and earnings stands at $13.02 billion and $3.47, respectively.
Zacks Rank & Stocks to Consider
Currently, DXC carries a Zacks Rank #4 (Sell). DXC shares have plunged 13% year to date (YTD).
The Zacks Consensus Estimate for Zscaler’s fiscal 2024 earnings has been revised 2 cents upward to $2.73 per share in the past 60 days, which suggests year-over-year growth of 52.5%. The long-term estimated earnings growth rate for the stock stands at 28.1%. The ZS stock has plunged 19% YTD.
The Zacks Consensus Estimate for Salesforce’s fiscal 2025 earnings has been revised upward by 3 cents to $9.71 per share in the past 60 days, which calls for an increase of 18.1% on a year-over-year basis. The long-term expected earnings growth rate for the stock is pegged at 17.4%. CRM shares have risen 8.2% YTD.
The consensus mark for Paycom’s 2024 earnings has been revised upward by 3 cents to $7.68 per share over the past 30 days, which indicates a marginal 0.9% decrease from that reported in 2023. It has a long-term earnings growth expectation of 10.4%. The PAYC stock has declined 12.4% in the YTD period.
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DXC Beats on Q4 Earnings, Shares Fall on Weak FY25 Guidance
DXC Technology Company (DXC - Free Report) reported better-than-expected results for the fourth quarter of fiscal 2024. The IT services and consulting company posted fourth-quarter non-GAAP earnings of 97 cents per share, which beat the Zacks Consensus Estimate of 83 cents.
However, the bottom line decreased 5% from the prior-year quarter’s earnings of $1.02 per share. The year-over-year decline was primarily due to lower revenues, increased interest expenses and a higher income tax rate, partially offset by a lower share count.
DXC reported revenues of $3.39 billion, which surpassed the consensus mark of $3.37 billion. However, the top line declined 5.7% year over year mainly due to a decrease in revenues across the Global Infrastructure Services (“GIS”) segment’s Modern Workplace and Cloud Infrastructure & ITO businesses. Additionally, we believe that the top line could have been negatively impacted by a slowdown in client expenditure in the current uncertain macroeconomic environment.
Despite reporting better-than-expected fiscal fourth-quarter results, shares of DXC Technology plunged more than 22% during Thursday’s extended trading session, as the company’s revenue and earnings guidance for first-quarter and fiscal 2025 both fell short of the Zacks Consensus Estimate. The company hinted that cautious spending by clients amid a challenging macroeconomic environment will hurt its fiscal 2025 top-line performance.
DXC Technology Company. Price, Consensus and EPS Surprise
DXC Technology Company. price-consensus-eps-surprise-chart | DXC Technology Company. Quote
Q4 Details
DXC’s bookings in the fiscal fourth quarter were $3.1 billion, reflecting a book-to-bill ratio of 0.94. The trailing 12-month bookings and book-to-bill ratio for the company were $12.4 billion and 0.93 at the fiscal 2024-end.
Segment-wise, revenues from Global Business Services (“GBS”) declined 2.2% on a year-over-year basis to $1.71 billion. On an organic basis, the division’s revenues decreased 0.3% year over year. The downside was primarily due to lower revenues in Analytics and Engineering and Applications businesses, partially offset by continued growth in Insurance.
GIS revenues were $1.67 billion in the fiscal fourth quarter, down 9% year over year. On an organic basis, the division’s revenues decreased 9.3% year over year. The GIS division witnessed revenue declines across all three business offerings — Cloud Infrastructure & ITO, Modern Workplace and Security.
The company’s non-GAAP gross profit declined 6% to $798 million from $849 million in the year-ago quarter mainly due to lower revenues. However, the non-GAAP gross margin remained flat on a year-over-year basis at 23.6%.
DXC’s non-GAAP operating income declined to $283 million in the fiscal fourth quarter from $320 million in the year-ago quarter. The adjusted operating margin contracted to 50 bps to 8.4% mainly due to lower non-cash pension income and a reduction in gain on asset sales.
Balance Sheet & Cash Flow
DXC exited the fiscal fourth quarter with $1.22 billion in cash and cash equivalents compared with $1.69 billion in the previous quarter. The long-term debt balance (net of current maturities) was $3.82 billion as of Mar 31, 2024, up from $3.88 billion as of Dec 31, 2023.
In the fiscal fourth quarter, DXC generated an operating cash flow of $280 million and a free cash flow of $155 million. In the quarter, it bought back shares worth $138 million.
During fiscal 2024, DXC generated an operating cash flow and a free cash flow of $1.36 billion and $756 million, respectively. It returned $883 million to shareholders through share repurchases during the period.
FY25 Guidance
DXC initiated the guidance for the first quarter and fiscal 2025. For the fiscal first quarter, the company anticipates revenues between $3.1 billion and $3.15 billion. The adjusted EBIT margin is expected to be 5.5-6%. DXC projects adjusted earnings per share between 55 cents and 60 cents for the fiscal first quarter. The Zacks Consensus Estimate for fiscal first-quarter revenues and earnings is pegged at $3.25 billion and 80 cents per share, respectively.
For fiscal 2025, DXC estimates revenues of $12.67-$12.95 billion. The company projects the adjusted EBIT margin for the fiscal to be 6-7%. It forecasts adjusted EPS between $2.50 and $3. The consensus mark for revenues and earnings stands at $13.02 billion and $3.47, respectively.
Zacks Rank & Stocks to Consider
Currently, DXC carries a Zacks Rank #4 (Sell). DXC shares have plunged 13% year to date (YTD).
Some better-ranked stocks in the broader technology sector are Zscaler (ZS - Free Report) , Salesforce (CRM - Free Report) and Paycom Software (PAYC - Free Report) , each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Zscaler’s fiscal 2024 earnings has been revised 2 cents upward to $2.73 per share in the past 60 days, which suggests year-over-year growth of 52.5%. The long-term estimated earnings growth rate for the stock stands at 28.1%. The ZS stock has plunged 19% YTD.
The Zacks Consensus Estimate for Salesforce’s fiscal 2025 earnings has been revised upward by 3 cents to $9.71 per share in the past 60 days, which calls for an increase of 18.1% on a year-over-year basis. The long-term expected earnings growth rate for the stock is pegged at 17.4%. CRM shares have risen 8.2% YTD.
The consensus mark for Paycom’s 2024 earnings has been revised upward by 3 cents to $7.68 per share over the past 30 days, which indicates a marginal 0.9% decrease from that reported in 2023. It has a long-term earnings growth expectation of 10.4%. The PAYC stock has declined 12.4% in the YTD period.