CSC Reports First Quarter Results of Fiscal Year 2015
News Release -- August 07, 2014
Diluted EPS from Continuing Operations of $1.03
Income from Continuing Operations of $159 Million
Operating Income of $304 Million and Operating Margin of 9.4%
Free Cash Flow of $70 Million
Maintaining FY 2015 Target Range for EPS from Continuing Operations of $4.35 - $4.55
FALLS CHURCH, Va., August 7 – CSC (NYSE: CSC) today reported results for the first quarter of fiscal year 2015.
“First quarter results were consistent with our expectations for the start to fiscal 2015,” said Mike Lawrie, president and CEO. “Our North American Public Sector (NPS) business performed well with sequential revenue improvement and a higher operating margin as we continue to position that business for the uncertain federal spending environment. In our commercial business, we continue to make investments in next generation offerings, strategic partnerships, and sales capacity as we focus on returning that business to growth. We are particularly pleased with the growth we are seeing in our cloud, cyber, and big data businesses.”
Diluted EPS from continuing operations was $1.03 for the first quarter of fiscal 2015.
Total revenue for the quarter was $3.24 billion, down 1% year-over-year as reported and down 2% year-over-year in constant currency compared with $3.25 billion in the year ago period.
Income from continuing operations of $159 million for the quarter compares with $161 million in the year-ago period.
Operating income was $304 million for the quarter, which compares with operating income of $332 million in the prior period. The company’s operating margin of 9.4 percent for the quarter compares with 10.2 percent for the first quarter of fiscal year 2014. The year-on-year change is primarily due to incremental investments in next-generation offerings, sales coverage, and strategic partnerships, as well as the restructuring of a few contracts.
Earnings before interest and taxes (EBIT) were $248 million in the quarter, compared with $269 million in the prior year. EBIT margin of 7.7 percent for the quarter compares with 8.3 percent in the prior year, reflecting the investments and restructurings discussed above.
Operating cash flow of $273 million in the quarter compares with $213 million in the prior year.
Free cash flow of $70 million for the first quarter was an improvement of $79 million when compared with an outflow of $9 million in the year-ago period, and reflects better working capital management.
Ending cash and cash equivalents were $2.4 billion, up from $1.9 billion at the end of the first quarter of fiscal 2014.
Global Business Services (GBS)
GBS revenue was $1.09 billion in the quarter, a 3 percent increase as reported and a 1 percent increase in constant currency when compared with the year ago quarter. Growth in industry software and solutions offset declines in the company’s consulting business, which is being repositioned to focus on higher-value, next-generation technology services. Applications revenue was up slightly year-on-year on a GAAP basis and down slightly year-on-year in constant currency. Operating margin of 9.9 percent compares with 10.7 percent in the year-ago period, reflecting higher investments in new offerings, sales coverage, and partnerships, as well as some higher project costs. Contract awards for GBS were $1.2 billion during the quarter.
Global Infrastructure Services (GIS)
GIS revenue was $1.13 billion in the quarter, a 1 percent decrease as reported and a 3 percent decrease in constant currency from the prior year due to price-downs, contract conclusions, and restructured contracts. An operating margin of 6.3 percent compares with 8.0 percent in the year-ago period, reflecting the impact of price-downs and restructured contracts, along with continued investments in next-generation offerings, sales coverage, and strategic partnerships. Contract awards for GIS were $1.2 billion in the quarter.
North American Public Sector (NPS)
NPS revenue was $1.02 billion in the quarter, a decline of 3 percent compared to first quarter of fiscal 2014, reflecting continued uncertainty in the budget environment at the Department of Defense and other Federal government agencies. The NPS operating margin of 14.8 percent compares with 12.1 percent in the prior year, driven by continued strong cost take-out and favorable contract performance. Contract awards for NPS were $300 million in the quarter.
Returning Cash to Shareholders
During the first quarter, CSC returned $177 million to shareholders, consisting of $29 million in common stock dividends and $148 million of share repurchases. CSC repurchased 2.4 million shares at an average price of $62.28 per share during the quarter. CSC had 145,411,589 basic shares outstanding on July 4, 2014.
During the quarter, CSC announced a 15 percent increase to the quarterly common stock dividend from $0.20 to $0.23, which was paid subsequent to the end of the quarter.
Conference Call and Webcast
CSC senior management will host a conference call and webcast at 5:00 p.m. EDT today. The dial-in number for domestic callers is 888-510-1762. Callers who reside outside the United States or Canada should dial 719-457-2603. The passcode for all participants is 9230506. The webcast audio and any presentation slides will be available at www.dxc.technology/investorrelations.
A replay of the conference call will be available from approximately two hours after the conclusion of the call until August 14, 2014. The replay dial-in number is 888-203-1112 for domestic callers and 719-457-0820 for callers who reside outside of the U.S. and Canada. The replay passcode is also 9230506. A replay of this webcast will also be available on CSC’s web site.
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 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, are included below.
Computer Sciences Corporation (CSC) is a global leader of next generation information technology (IT) services and solutions. The Company's mission is to enable superior returns on our client's technology investments through best-in-class industry solutions, domain expertise and global scale. CSC has approximately 76,000 employees and reported revenue of $13.0 billion for the 12 months ended July 4, 2014. For more information, visit the company's website at www.dxc.technology.
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 28, 2014 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.
Note: During the first quarter of fiscal 2015, CSC adopted a new mark-to-market pension accounting policy and changed its inter-company accounting policy. The company’s results from the prior year have been adjusted to reflect these changes.
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