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Why Is Unisys (UIS) Down 31% Since Last Earnings Report?

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It has been about a month since the last earnings report for Unisys (UIS - Free Report) . Shares have lost about 31% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Unisys 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.

Unisys’ Q3 Earnings & Revenues Up Y/Y

Unisys reported third-quarter 2018 results wherein the bottom line missed the Zacks Consensus Estimate but the top line beat.

Non-GAAP earnings per share were 39 cents, which lagged the Zacks Consensus Estimate by 7 cents but exceeded the prior-year figureof 31 cents.

The company’s revenues came in at $688.3 million, topping the consensus estimate of $682 million. The figure was up 3.3% from the prior-year quarter.

Adjusted EBITDA jumped 6.5% to $96.1 million.

Quarter in Detail

The Services segment generated revenues of $602.5 million, up 4.7% from the prior-year quarter, constituting 87.5% of the total quarterly revenues. Services backlog increased 33% year over year to $4.9 billion.

Unisys’ continued focus on increasing the efficiency of its Services delivery engine through increased automation and artificial intelligence is reflected in the quarterly performance of the Services segment.

Technology segment’s revenues were $87 million, down 8.6% from the year-earlier quarter. This decline was partly due to currency fluctuations in the Brazilian real.

In the last reported quarter, the company launched Unisys InteliServe, a user-centric service desk platform, which showed momentum in the third quarter. Unisys signed contracts with two key clients in the quarter.

During the third quarter, Unisys launched Unisys TrustCheck service to keep security professionals constantly updated on their organization's cybersecurity position, among other features.

Revenues from Stealth showed strong growth of 90% year over year.

Total contract value (TCV) rallied 46% and new business TCV grew 133% during the quarter.

However, annual contract value (ACV) decreased 9% and new business ACV fell 8%. Several large contracts that the federal business achieved in the year-ago quarter led to a tough year-over-year comparison.

Operating Metrics

Non-GAAP operating profit for the reported quarter was $52.8 million compared with $50 million in the prior-year quarter. Higher mix of software revenue aided the expansion in margin.

Non-GAAP operating profit margin was 7.7%, up 20 basis points year over year.

Balance Sheet and Cash Flow

As of Sep 30, 2018, Unisys had $516.1 million in cash and cash equivalents compared with $584.3 million in the previous quarter.

Long-term debt was $640.1 million compared with $638.1 million witnessed at the end of previous quarter.

During the quarter, the company used $77.4 million of cash for operational activities, as compared to $11.7 million sequentially. Adjusted free cash outflow was $6.4 million.

Outlook

The company reaffirmed its outlook for 2018. It expects non-GAAP revenues of $2.7-$2.83 billion in the year. Non-GAAP operating margin is expected in the range of 7.8-8.8%. Adjusted EBITDA margin is projected to be 13.7-14.9%.

Unisys’ joint venture called iPSL with three large U.K. based banks underwent some restructuring and IT upgrading toward the end of the quarter. The cash benefits of these activities are expected to be included in the fourth-quarter results.

In the fourth quarter, the company expects to generate strong cash flow, like the previous fourth quarters.

How Have Estimates Been Moving Since Then?

Fresh estimates followed a downward path over the past two months. The consensus estimate has shifted -23.86% due to these changes.

VGM Scores

Currently, Unisys has a poor Growth Score of F, however its Momentum Score is doing a lot better with a C. 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Unisys has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.




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