CSC Delivers Continued Earnings and Margin Growth
News Release -- October 30, 2013
Diluted EPS from Continuing Operations of $0.93, up $0.24 YoY
Income from Continuing Operations of $146 Million, up $30 Million YoY
Operating Income of $338 Million, up $29 Million Sequentially and $76 Million YoY
Operating Income Margin of 10.6% Improved from 9.5% in Q1 2014 and 7.4% in Q2 2013
Maintaining FY 2014 Target Range for EPS from Continuing Operations of $3.50 - $3.70
FALLS CHURCH, Va., October 30 – CSC (NYSE: CSC) today reported diluted earnings per share of $1.34 consisting of $0.93 from continuing operations and $0.41 from discontinued operations for the second quarter of fiscal 2014. In the second quarter of 2013, CSC reported $0.83 of diluted earnings per share consisting of $0.69 from continuing operations and $0.14 from discontinued operations. Total revenue was $3.19 billion, a decline of 9% in constant currency when compared to $3.53 billion from the year ago period. However, on a more comparable basis, revenue declined by 7% in constant currency.
“In our commercial business, we are seeing early signs of improvement in book-to-bill and pipeline growth as a result of our investments in salespeople, sales support and next-generation IT services offerings,” said Mike Lawrie, president and CEO. “The Federal business is delivering strong profitability and margin growth amidst uncertainty in government spending. And our cost takeout actions across the company are contributing to our earnings growth.”
- EPS from continuing operations of $0.93 for the second quarter, flat sequentially and an increase of $0.24 from the second quarter of fiscal 2013.
- Net income was $209 million for the second quarter, an increase of $50 million sequentially and $71 million from the prior year.
- Operating income was $338 million, an increase of $29 million sequentially and $76 million when compared with the prior year. Operating income margin was 10.6% for the quarter, an increase when compared with 9.5% on a sequential basis and 7.4% in the prior year.
- Earnings before interest and taxes (EBIT) was $248 million, an increase of $2 million sequentially and $45 million when compared with the second quarter of fiscal 2013. EBIT margin of 7.8% improved from 7.6% on a sequential basis and 5.8% in the prior year.
- Operating cash flow of $270 million in the quarter compares with $444 million in the prior year. Last year’s result includes a $110 million settlement payment from the UK National Health Service (NHS) and $22 million from divested businesses.
- Free cash flow of $86 million compares with $105 million in the prior period excluding the settlement payment and net contributions from divested businesses.
- Ending cash and cash equivalents were $2.1 billion as of September 27, 2013, an increase of $245 million over the prior year.
Global Business Services
GBS offerings include consulting, industry software & solutions, business process services, and applications services. Revenue was $1.05 billion in the quarter which compares with revenue of $1.20 billion in the year ago quarter. Excluding $69 million from a divested IT staffing business in the year-ago period, GBS revenue decreased by 7% in constant currency. Operating margin excluding restructuring increased to 11.7% from 8.2% in the prior year, primarily due to the company’s cost takeout efforts. New business awards for GBS were $1.3 billion in the quarter.
Global Infrastructure Services
GIS provides managed and virtual desktop solutions, unified communications and collaboration services, data center management, as well as CSC's next generation Cloud offerings including secure Infrastructure as a Service (IaaS), private Cloud solutions, CloudMail and Storage as a Service (SaaS).
GIS revenue was $1.12 billion in the quarter, a 3% decrease in constant currency from $1.16 billion in the prior year as the company terminated or restructured less profitable contracts. Operating margin excluding restructuring increased to 9.3% from 7.1% in the prior year as the business benefitted from cost takeout initiatives and better contract performance. GIS reported new business awards of $800 million in the quarter.
North American Public Sector
NPS provides mission-specific IT services, infrastructure and business services primarily to the U.S. federal government. NPS revenue was $1.05 billion in the quarter, a decline of 12% as compared to $1.19 billion in the second quarter of fiscal 2013. Revenue in the quarter was impacted by the continuing Federal budget uncertainties and delays in new contract awards. Operating margin improved to 14.9% versus 12.0% in the prior year due to the benefit of our cost takeout initiatives and better performance on fixed price contracts. New business awards for NPS were $2.1 billion in the quarter.
Returning Capital to Shareholders
During the second quarter, CSC returned $132 million to shareholders consisting of $30 million in common stock dividends and $102 million of share repurchases. CSC repurchased 2.0 million shares at an average price of $49.85 per share during the quarter. CSC had 147,631,192 basic shares outstanding on September 27, 2013.
Conference Call and Webcast
CSC senior management will host a conference call and Webcast at 5 p.m. today. The dial-in number for domestic callers is 800-768-6563. Callers who reside outside of the United States or Canada should dial 785-830-7991. The passcode for all participants is 7725133. The webcast audio and any presentation slides will be available on CSC’s Investor Relations site.
A replay of the conference call will be available from approximately two hours after the conclusion of the call until November 6, 2013. The replay dial-in number is 888-203-1112 for domestic callers and 719-457-0820 for callers who reside outside of the United States and Canada. The replay passcode is also 7725133.
In an effort to provide investors with additional information regarding the Company’s preliminary results as determined by generally accepted accounting principles (GAAP), the Company has also disclosed in this press release preliminary non-GAAP information which management believes provides useful information to investors, including: operating income, operating margin, earnings before interest and taxes (EBIT), EBIT margin, and free cash flow. Reconciliations of the preliminary non-GAAP measures to the respective and most directly comparable GAAP measures, as well as the rationale for management’s use of non-GAAP measures, is included below.
CSC is a global leader of next-generation information technology (IT) services and solutions. The company's mission is to enable superior returns on clients' technology investments through best-in-class industry solutions, domain expertise and global scale. CSC has approximately 81,000 employees and reported revenue of $13.5 billion for the 12 months ended September 27, 2013.
All statements in this press release and in all future press releases that do not directly and exclusively relate to historical facts constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements represent the Company’s intentions, plans, expectations and beliefs, and are subject to risks, uncertainties and other factors, many of which are outside the Company’s control. These factors could cause actual results to differ materially from such forward-looking statements. For a written description of these factors, see the section titled “Risk Factors” in CSC’s Form 10-K for the fiscal year ended March 29, 2013 and any updating information in subsequent SEC filings. The Company disclaims any intention or obligation to update these forward-looking statements whether as a result of subsequent event or otherwise, except as required by law.