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Why Is Unisys (UIS) Down 9.3% Since Last Earnings Report?

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A month has gone by since the last earnings report for Unisys (UIS - Free Report) . Shares have lost about 9.3% 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 catalysts.

Unisys’ Q4 Earnings Beat, Revenues Up Y/Y

Unisys reported fourth-quarter 2018 results wherein both the bottom line and the top line surpassed the Zacks Consensus Estimate.

Non-GAAP earnings per share were 97 cents, which topped the Zacks Consensus Estimate of 66 cents but lagged the prior-year figure of $1.75.

The company’s revenues came in at $760.9 million, beating the consensus estimate of $752 million. The figure was up 2.2% year over year on a reported basis and 4.8% in constant currency.

Quarter in Detail

The Services segment generated revenues of $625.5 million, up 5.6% from the prior-year quarter. On a constant currency basis it grew 8.3%, constituting 82.2% of the total quarterly revenues. Services backlog increased 13% to $4.8 billion.

Unisys’ continued focus on increasing the efficiency of its Services delivery engine through increased automation and artificial intelligence was a positive.

Technology segment’s revenues were $135.4 million, down 11% from the year-earlier quarter.

Total contract value (TCV) declined 49% year over year, and new business TCV fell 51% during the quarter. This was mainly due to exceptionally high growth in TCV in the fourth quarter of 2017.

The company continued to benefit from the expanding Stealth portfolio. Revenues from Stealth showed strong growth of 94% year over year. During the quarter, a large U.S. Department of Defense agency rented Stealth product authorization to provide secure zones to process and store sensitive government information in the agency’s production environment.

The company also continues to expand the Augusta Georgia security operating center. This will increase strength of analysts and boost its managed security services business.

Moreover, an apprenticeship program with the U.S. Department of Labor in association with the United States Department of Veterans Affairs was also announced by Unisys.

The company is also investing in the Unisys security integration platform that will combine its security offerings with those from its partners, enabling a full lifecycle approach to security.

Operating Metrics

Non-GAAP operating profit of $89.9 million was down from $118.1 million from the year-ago quarter.

Non-GAAP operating profit margin of 11% was down 400 basis points.

Margins were also affected by new business in implementation stage in the Services segment.

Adjusted EBITDA fell 16.4% to $134.5 million.

Balance Sheet and Cash Flow

As of Dec 31, 2018, Unisys had $605 million in cash and cash equivalents compared with $516.1 million in the previous quarter.

Long-term debt was $642.8 million compared with $640.1 million witnessed at the end of third quarter.

During the fourth quarter, the company used $73.9 million of cash for operational activities compared with $77.4 million a quarter ago. Adjusted free cash outflow was $123.8 million.

Full Year Highlights

For the full year, revenues grew 3% year over year to $2.83 billion, and non-GAAP earnings of $1.95 per share decreased from $2.49 reported in 2017.

For full-year 2018, Services revenues increased 2.5% year over year driven by strength in U.S. federal and commercial sectors, and growth in new managed services contracts.

For the full year, the segment’s revenues of $386 million fell 6.7%. The decline was due to the ClearPath Forward renewal schedule.

However, for the full year, TCV grew 27%, and new business TCV rose 51% year over year, driven by strength in the public sector, as several large managed services contracts were signed during the year with U.S. state governments.

Outlook

The company provided its outlook for 2019. It expects non-GAAP revenues of $2.8-$2.9 billion in the year. Non-GAAP operating margin is expected in the range of 8.25-9.25%. Adjusted EBITDA margin is projected to be 14.4-16%.

Unisys intends to release two new Stealth products this year, which will leverage artificial intelligence and biometrics.

As part of its efforts to boost its security solutions, Unisys is scheduled to launch TrustCheck — a platform that quantifies cyber risk in monetary units based on objective breach data and its zero trust implementation offering.
 

How Have Estimates Been Moving Since Then?

Fresh estimates followed a downward path over the past two months. The consensus estimate has shifted -10.26% due to these changes.

VGM Scores

Currently, Unisys has a subpar Growth Score of D, a grade with the same score on the momentum front. 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Unisys has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.




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