CSC turns in third quarter results
Computer Sciences Corporation (CSC) has reported preliminary results for its fiscal 2008 third quarter with net income at $179.0 million. Revenue for the third quarter was $4.16 billion, up 14.3 percent year on year. Europe contributed revenue growth of over 20 percent.
Third quarter global commercial revenue was $2.73 billion, up 17.5 percent compared to $2.32 billion in the year-ago quarter. US revenue was $1.03 billion, up 11.5 percent compared with $924.8 million last year while European revenue rose to $1.24 billion, up 20.7 percent from $1.03 billion reported for the third quarter last year. Non-European international revenue was $454.4 million, up 23.4 percent compared with last year’s $368.1 million.
“We are pleased with our third quarter profit performance, which was stronger than anticipated, with some benefits advancing from the fourth to the third quarter, and with free cash flow of $300 million for the quarter, we remain on track to achieve our fiscal year target,” said CSC Chairman, President and Chief Executive Officer Michael W. Laphen.
“Our multi-year strategic initiative, Project Accelerate, provides us with direction and opportunities going forward to achieve our goals of improving revenue growth, operating margin and ROIC. We are strengthening our positions in selected industry vertical markets to help drive these improvements. Notably, we closed the acquisition of First Consulting Group on January 11. This acquisition enhances our healthcare expertise and intellectual property while expanding our worldwide delivery capabilities.
“For the fourth quarter, ending March 28, we anticipate revenue to be in the range of $4.2 billion to $4.5 billion and earnings per share, excluding special items, to be in the $1.33 to $1.43 range. Our guidance for the fiscal year’s revenue continues to be in the range of $16.2 billion to $16.5 billion, up approximately 9% to 11%. We now expect earnings per share for the year to be in the $3.75 to $3.85 range, including the adoption of FIN 48, but excluding special items.”
The firm also announced that it has received a $22 million modification to the National Aeronautics and Space Administration (NASA) Shared Services Centre contract to provide additional support services to NASA employees at Stennis Space Centre. The modification applies to the $230 million contract NASA awarded CSC in May 2005. The new modification plus several previously unannounced contract modifications brings the total estimated value of the contract, which has a five-year base period and five one-year options, to approximately $265 million if all options are exercised.
Under the terms of the modification, CSC will expand its existing financial support services to accommodate increased workload projections for accounts payable and accounts receivable, and will support NASA’s Fund Balance with Treasury. In 2005, NASA consolidated select business and technical services performed across the agency into a single Shared Services Center to increase operational efficiency and improve overall customer service.
“CSC is pleased to expand our work with NASA on its Shared Services Centre project to provide innovative administrative solutions that deliver benefits to nearly 20,000 NASA employees, applicants, contractors and partners,” said Tom Anderson, president of CSC’s North American Public Sector Civil Division.
“There’s plenty of good news for CSC in these quarterly results,” observed John Madden of research house Ovum. “Virtually every major line of business saw double-digit growth – with the exception of its North American public sector, which still generated $1.44bn in revenue, an 8.6 percent increase. The outsourcer announced $2.3 billion in major contracts during the quarter, for a nine-month total of $10.8bn, and CSC stated it has $34 billion in its public sector pipeline during the next 14 months from a variety of US government agencies. The outsourcer also received a major lift from its European business, which had $1.24 bilion in quarterly revenue, a 20.7 percent increase. In fact, CSC executives said the company received a major payment as part of the UK NHS contract in the last quarter which contributed to an increase in CSC’s available free cash.”
Madden noted that CSC executives attributed the positive results in part to its ongoing three-year Project Accelerate initiative to spark growth across all lines of business. The initiative included a massive internal restructuring, which CSC expects will result in a $126m charge for the entire fiscal year. Project Accelerate also focused on revamping and enhancing CSC’s global operations and delivery in several major strategic areas, including commercial outsourcing, public sector, vertical industries, and India.
“CSC can legitimately point to some success in these areas that contributed to a healthy quarter. For example, CSC last year acquired Covansys, an offshore application development and maintenance firm, and has now integrated its operations with CSC India, resulting in more than 15,000 employees in that country (where CSC had just a few thousand not that long ago). The outsourcer also recently completed its deal for First Consulting Group, a healthcare-based consulting firm that will be integrated into revamped Health Services vertical industry practice.”
But he added: “Despite the positive earnings news, CSC will need to continue executing on its growth strategy as some enterprise IT customers take a second look at project spending. CEO Laphen acknowledged that customers are ‘a bit more concerned’ regarding the slowing US economy and other global economic factors, and spending new awards or projects ‘have slowed a bit’ as clients evaluate where the economy is headed. On the other hand, Laphen said CSC expects to see even greater client interest and emphasis on outsourcing and leveraging offshore capabilities, depending on customer needs. Indeed, CSC finds itself in the same position as other global integrators and outsourcers – trying to determine how building economic pressures will impact their core lines of business and how they should react.”