DXC Technology Company (DXC - Free Report) reported better-than-expected results for fourth-quarter fiscal 2018, wherein its top and bottom lines came ahead of the Zacks Consensus Estimate and also marked robust year-over-year improvements. The robust quarterly results were mainly driven by the merger of the Computer Sciences Corporation and Enterprise Services Division of Hewlett Packard Enterprise (HPE - Free Report) .
Notably, in 2016, Hewlett Packard Enterprise entered into a spin-off-merger agreement with Computer Sciences Corporation, wherein it agreed to spin-off its Enterprise Services division and merge the same with the latter’s businesses. The transaction closed on Apr 1, 2017, and the new entity was named DXC Technology.
Coming back to the fiscal fourth-quarter results, the company reported non-GAAP earnings of $2.28 per share, which surpassed the Zacks Consensus Estimate of $2.19, and also increased year over year.
DXC Technology Company. Price, Consensus and EPS Surprise
Revenues in the quarter came in at $6.294 billion and surpassed the Zacks Consensus Estimate of $$6.12 billion. On a pro forma combined company basis, the company registered year-over-year growth of 4.3%. However, on a constant-currency basis, revenues edged down 1.3% year over year.
Segment wise, pro forma revenues from Global Business Services (GBS) increased 3.3% on a year-over-year basis to $2.36 billion. The company continues to witness shift in traditional application services to enterprise and cloud applications.
Global Infrastructure Services (GIS) revenues during the fiscal fourth quarter came in at $3.22 billion, marking 3.3% year-over-year growth on a pro forma combined company basis. The year-over-year improvement was mainly driven by growth in the company’s “cloud and platform services as well as mobility and workplace.”
USPS revenues came in at $710 million during the quarter, up 11.1% year over year on a pro forma combined company basis. Notably, this was the last quarter when the company reported USPS results as its operating segment. As the spin-off of USPS will close on June 1, this year, the company will not include this segment under its operating results anymore.
The company’s adjusted operating income from continuing operations, on a pro forma combined company basis, amounted to $1.03 billion. Adjusted operating margin came in at 16.2% as compared with 10.2% reported in the prior-year quarter, on a pro forma combined company basis. The robust improvement was mainly driven by the achievement of approximately $1.1 billion of cost synergies from CSC and HPE’s Enterprise Services division merger during fiscal 2018.
Adjusted net income from continuing operations came in at $661 million during the quarter as compared with $387 million reported in the year-earlier period on a pro forma combined company basis.
The company exited the reported quarter with $2.648 billion in cash and cash equivalents compared with $2.926 billion recorded in the previous quarter. Long-term debt balance (net of current maturities) was $6.306 billion. Net cash provided by operating activities during the fiscal came in at $3.243 billion. Adjusted free cash flow for fiscal 2018 came in at $2.427 billion. During this period, the company returned $306 million to shareholders through share buyback and dividend payments.
Fiscal 2019 Outlook
The company initiated fiscal 2019 outlook. For the fiscal, DXC Technology projects revenues of $21.5-$22 billion. The Zacks Consensus Estimate for the same is pegged at $23.85 billion.
The company anticipates non-GAAP earnings per share between $7.75 and $8.15. The Zacks Consensus Estimate for earnings is pegged at $8.97.
During the fiscal, the company projects incremental cost savings of $400 million.
Post merger, DXC Technology has become the world’s second largest end-to-end IT services providing company after Accenture plc (ACN - Free Report) . We believe the merger has opened up avenues of growth for the combined company. This alliance has combined Computer Sciences’ strength in insurance, healthcare, and financial services with HPE’s expertise in industries like transportation, pharma, technology, media and telecom.
Following the footsteps of Computer Sciences, DXC Technology might be seen making strategic acquisitions to enhance its portfolio, which is likely to drive growth over the long run. Notably, since its formation, the company has announced six acquisitions — Tribridge, Logicalis SMC, Racemi, M-Power, eBECS and Stable37.
Currently, DXC Technology has a Zacks Rank #3 (Hold).
A better-ranked stock in the same industry space is Science Applications International Corporation (SAIC - Free Report) which sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Science Applications International Corporation has a long-term expected EPS growth rate of 5%.
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