Computer Sciences Corporation (NYSE:CSC) reported results for the second quarter of fiscal year 2016.
“Second quarter results were in-line with our expectations,” said Mike Lawrie, president and CEO. “Profitability again improved year-over-year in our commercial business and remained strong in our public sector business, and we delivered improved cash flow. During the quarter, we also completed the acquisitions of Fixnetix and Fruition Partners, which are consistent with our strategy of shifting our revenue mix to applications, consulting, and next-generation offerings with better growth, profitability, and cash flow. Finally, we remain on track to complete the separation of our U.S. public sector business, pay the $10.50 per share special dividend to shareholders, and complete the merger of our public sector business with SRA.”
- Diluted earnings per share from continuing operations were $1.19 in the second quarter and included ($0.30) per share in separation, merger, and other transaction costs, ($0.01) per share in SEC settlement-related items, ($0.14) per share in real estate restructuring charges, and $0.38 per share from a tax valuation allowance benefit. Excluding these items, non-GAAP diluted earnings per share from continuing operations were $1.26, up 7 percent when compared with $1.18 in the second quarter of fiscal 2015.
- Income from continuing operations before taxes was $176 million. Excluding the impact of certain items, non-GAAP income from continuing operations before taxes was $247 million compared with $245 million a year ago.
- Operating income was $308 million. Operating income, adjusted for certain items, was $331 million and compares with $349 million in the prior year. Operating margin on the same basis was 12.2 percent, up from 11.3 percent in the prior year.
- Income from continuing operations was $173 million for the second quarter. Excluding the impact of the items discussed above, non-GAAP income from continuing operations was $183 million, compared with $177 million in the prior year.
- Earnings before interest and taxes (EBIT) was $204 million and included $48 million in separation, merger, and other transaction costs, $2 million in SEC settlement-related items, and $21 million in real estate restructuring charges. Adjusting for these items, EBIT was $275 million, and compares with $276 million in the second quarter of fiscal 2015, and EBIT margin was 10.1 percent, up from 9.0 percent in the prior year.
- Year-to-date, net cash provided by operating activities was $441 million compared with $490 million in the prior year.
- Year-to-date, free cash flow was $170 million compared with $101 million in the prior year, an increase of $69 million.
GLOBAL BUSINESS SERVICES
GBS revenue of $891 million in the quarter compares with $1,003 million in the year ago quarter, a decline of 3.7 percent year-over-year in constant currency. The GBS revenue decline was driven by the ongoing repositioning of our consulting business and contract completions in our applications business. GBS operating margin, excluding the impact of certain items, was 12.8 percent, down slightly from 13.0 percent a year ago. New business awards for GBS were $0.7 billion in the second quarter.
GLOBAL INFRASTRUCTURE SERVICES
GIS revenue of $854 million in the quarter compares with $1,036 million in the year-ago quarter, a decline of 10.8 percent year-over-year in constant currency. The GIS revenue decline was driven by the impact of restructured contracts, other contract completions, and price-downs, which more than offset growth in next-generation offerings. GIS operating margin, excluding the impact of certain items, was 8.5 percent, up from 6.6 percent a year ago. New business awards for GIS were $0.7 billion in the quarter.
NORTH AMERICAN PUBLIC SECTOR
NPS revenue was $967 million in the second quarter, a decrease of 7.1 percent when compared with $1,041 million in the second quarter of fiscal 2015. The NPS revenue decline was driven by program completions and changes in task orders, which more than offset new work across all parts of the business. NPS operating margin, excluding the impact of certain items, was 16.6 percent, up from 15.4 percent in the prior year. New business awards for NPS were $1.5 billion in the quarter.
RETURNING CAPITAL TO SHAREHOLDERS AND SEPARATION UPDATE
During the second quarter, CSC returned $32 million to shareholders in common stock dividends. Separately, CSC today announced that its Board of Directors has approved proceeding with the previously announced separation of its U.S. public sector business under a new name, CSRA Inc., as well as the declaration of a special cash distribution of $10.50 in the aggregate per CSC share. The separation will occur through a one-for-one pro rata distribution of all CSRA shares to CSC stockholders on November 27, 2015 after market close.
CSC had 138,472,660 basic shares outstanding on October 2, 2015. (Original Source)
Shares of Computer Sciences closed today at $68.10, up $0.61 or 0.90%. CSC has a 1-year high of $73.29 and a 1-year low of $56.56. The stock’s 50-day moving average is $63.69 and its 200-day moving average is $64.96.
On the ratings front, Computer Sciences has been the subject of a number of recent research reports. In a report issued on September 1, BMO analyst Keith Bachman reiterated a Hold rating on CSC, with a price target of $72, which implies an upside of 6.2% from current levels. Separately, on the same day, Deutsche Bank’s Bryan Keane reiterated a Hold rating on the stock and has a price target of $65.
According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, Keith Bachman and Bryan Keane have a total average return of 20.0% and 16.1% respectively. Bachman has a success rate of 65.0% and is ranked #39 out of 3824 analysts, while Keane has a success rate of 82.1% and is ranked #97.
Overall, 2 research analysts have assigned a Hold rating and 2 research analysts have given a Buy rating to the stock. When considering if perhaps the stock is under or overvalued, the average price target is $71.33 which is 5.3% above where the stock opened today.
Computer Sciences Corp provides information technology (IT) and professional services and solutions. The Company’s reportable segments are Global Business Services (GBS), Global Infrastructure Services (GIS), and North American Public Sector (NPS).