CSC Delivers Continued Earnings, Margin and Cash Flow Growth
News Release -- January 30, 2014
Diluted EPS from Continuing Operations of $0.98, up 38% YoY
Income from Continuing Operations of $151 Million, up 32% YoY
Operating Income of $316 Million, up 22% YoY
Operating Income Margin of 9.8% Improved from 7.4% YoY
Free Cash Flow of $324 Million, up 32% YoY
Raising FY 2014 Target Range for EPS from Continuing Operations to $3.80 to $3.90
FALLS CHURCH, Va., January 30 – CSC (NYSE: CSC) today reported diluted earnings per share of $0.98 from continuing operations for the third quarter of fiscal 2014, a 38% increase from $0.71 diluted earnings per share in the third quarter of 2013. Total revenue was $3.23 billion, a decline of 7% in constant currency on a comparable basis. Commercial revenue was down 3% and North American Public Sector (NPS) revenue was down 14%.
"We are pleased with our financial results and continued progress on cost takeout which is driving strong year-over-year margin expansion, earnings and free cash flow growth." said Mike Lawrie, president and CEO. "We have assembled key building blocks to deliver next generation IT services. We acquired ServiceMesh, a leading cloud management platform enabling multi-vendor hybrid clouds including integrations with existing partners such as VMware and Microsoft. We have a strategic partnership with HCL to create a world-class applications modernization delivery network. And today we are announcing a definitive agreement with Amazon Web Services to establish, using Amazon services, a Cloud Center of Excellence designed to accelerate the development of cloud solutions for enterprise and public sector customers. Our commercial business delivered strong bookings growth and sequential revenue growth of 6% in Global Business Services and 3% in Global Infrastructure Services. "
- EPS from continuing operations of $0.98 for the third quarter, up $0.27 from the third quarter of fiscal 2013.
- Income from continuing operations was $151 million for the third quarter, an increase of $37 million from the prior year.
- Operating income was $316 million, an increase of $56 million when compared with the prior year. Operating income margin was 9.8% for the quarter, an increase when compared with 7.4% in the prior year.
- Earnings before interest and taxes (EBIT) was $255 million, an increase of $58 million when compared with the third quarter of fiscal 2013. EBIT margin of 7.9% improved from 5.6% in the prior year.
- Operating cash flow of $529 million in the quarter compares with $413 million in the prior year.
- Free cash flow of $324 million compares with $245 million in the year-ago period.
- Ending cash and cash equivalents were $2.28 billion as of December 27, 2013, an increase of $86 million over the prior year.
- New business awards were $3.3 billion in the quarter, up 14% when compared with the year-ago period.
Global Business Services (GBS)
GBS offerings include consulting, industry software and solutions, business process services, and applications. Revenue was $1.11 billion for the quarter which compares with revenue of $1.22 billion in the year ago quarter. Excluding $61 million from a divested IT staffing business in the year-ago period, GBS revenue decreased by 4% in constant currency, primarily due to the repositioning of the company's consulting practice to a partner-led model with higher value, industry-specific offerings. On a sequential basis, revenue increased by 6% on the strength of applications, business process services (BPS) and big data. Operating margin excluding restructuring increased to 12.7% from 9.2% in the prior year, primarily due to the company's cost takeout efforts. New business awards for GBS were $2.0 billion in the quarter.
Global Infrastructure Services (GIS)
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 Infrastructure as a Service (IaaS), private Cloud solutions, the ServiceMesh Agility Platform, CloudMail and Storage as a Service (SaaS).
GIS revenue was $1.15 billion in the quarter, a 3% decrease in constant currency from $1.19 billion in the prior year. Commercial cloud revenue growth of 32% and commercial cyber revenue growth of 143% are being offset by contract conclusions and modifications. On a sequential basis, GIS revenue increased by 3%. Operating margin excluding restructuring increased to 7.5% from 5.3% in the prior year as the business benefitted from cost takeout initiatives and better contract performance. GIS delivered new business awards of $700 million in the quarter.
North American Public Sector (NPS)
NPS provides mission-specific IT services, infrastructure and business services primarily to the U.S. federal government. NPS revenue was $990 million in the quarter, a decline of 14% as compared to $1.16 billion in the third quarter of fiscal 2013. NPS continued to be impacted by Federal budget uncertainties and delays in new contract awards and the recent government shutdown. Operating margin was 11.7% versus 11.3% in the prior year and reflects the benefit of cost takeout actions. New business awards for NPS were $600 million in the quarter.
Returning Capital to Shareholders
During the third quarter, CSC returned $154 million to shareholders consisting of $29 million in common stock dividends and $125 million of share repurchases. CSC repurchased 2.4 million shares at an average price of $51.96 per share during the quarter. CSC had 145,895,634 basic shares outstanding on December 27, 2013.
Conference Call and Webcast
CSC senior management will host a conference call and Webcast at 5 p.m. Eastern Standard Time today. The dial-in number for domestic callers is 888-539-3686. Callers who reside outside of the United States or Canada should dial 719-325-2445. The passcode for all participants is 1523719. 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 February 6, 2014. 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 1523719.
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 in next-generation 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 80,000 employees and reported revenue of $13.2 billion for the 12 months ended December 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.
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