CSC Delivers Continued Operating Profit and Free Cash Flow Growth in Fourth Quarter and Fiscal Year 2014
News Release -- May 08, 2014
Q4 Diluted EPS from Continuing Operations of $1.19, or $1.09 Excluding Special Item
Full Year Diluted EPS from Continuing Operations of $4.01, or $3.91 Excluding Special Item
Q4 Income from Continuing Operations of $179 Million;
Full Year Income from Continuing Operations of $621 Million, up 25% YoY
Q4 Operating Income of $359 Million and Operating Margin of 10.8%;
Full Year Operating Income of $1.32 Billion and Operating Margin of 10.2%
Free Cash Flow of $288 Million for the Fourth Quarter and $689 Million for Fiscal Year 2014
EPS from Continuing Operations Target of $4.35 to $4.55 for Fiscal Year 2015
Board of Directors Approves 15% Increase to Quarterly Dividend to $0.23 per Share and
New Share Repurchase Authorization of $1.5 Billion
FALLS CHURCH, Va., May 8 – CSC (NYSE: CSC) today reported results for fourth quarter and fiscal year 2014.
“During fiscal 2014, CSC’s cost takeout initiatives drove significant increases to our profit margins and free cash flow. We finished the year with another quarter of sequential revenue growth and bookings growth,” said Mike Lawrie, president and CEO. “Our ground-breaking partnerships are beginning to build momentum, and we are expecting to see contributions to our commercial business in the second half of fiscal 2015. While we are encouraged by the pickup in our commercial business, we still see a fair amount of uncertainty in the Federal market. We continue to drive greater profitability across our business and we are targeting double-digit earnings per share growth to $4.35 to $4.55 in fiscal 2015.”
Total revenue for the quarter was $3.33 billion and compares with revenue of $3.50 billion in the year ago period, a decrease of 5% in constant currency. For the full year, revenue of $13.0 billion declined by 8% in constant currency and 7% on a more comparable basis after adjusting for the divestiture of the Australian IT staffing business in January 2013.
Operating income was $359 million for the quarter, an increase of $154 million when compared with the prior year, and reflects progress made from cost takeout initiatives and higher restructuring in the year-ago period, as well as the benefit from a special item – a $21 million reversal of contingent consideration associated with the acquisition of ServiceMesh, Inc. Operating margin of 10.8% for the quarter and 10.2% excluding the one-time benefit compares with 5.9% for the fourth quarter of fiscal year 2013. For the full year, operating income of $1.32 billion increased by $444 million when compared with the prior year. Operating margin of 10.2% for the year and 10.0% excluding the one-time benefit compares with 6.2% in the prior fiscal year.
Earnings before interest and taxes (EBIT) were $292 million in the quarter, an increase of $161 million when compared with the prior year. EBIT margin of 8.8% for the quarter, and 8.1% excluding the one-time benefit, compares with 3.7% in the prior year. For the full year, EBIT of $1.04 billion increased by $431 million over the prior year. EBIT margin of 8.0% for the year and 7.8% adjusting for the one-time benefit compares with 4.3% in the prior fiscal year.
Income from continuing operations of $179 million for the fourth quarter decreased by $68 million when compared with the year ago period due primarily to a tax benefit of $144 million in the prior year. For fiscal 2014, income from continuing operations of $621 million increased by $123 million when compared with fiscal 2013.
Diluted EPS from continuing operations for the fourth quarter of fiscal 2014 was $1.19, or $1.09 excluding the reversal of contingent consideration. Diluted EPS from continuing operations of $1.56 in the fourth quarter of 2013 included (1) a gain from divestiture, (2) significant restructuring costs, (3) settlement of securities class action lawsuit, and (4) a tax benefit. Adjusting for these items, diluted EPS from continuing operations in the fourth quarter of 2013 was $1.22, a reconciliation for which can be found in Non-GAAP Diluted EPS from Continuing Operations.
For fiscal 2014, diluted EPS from continuing operations was $4.01, or $3.91 excluding the reversal of contingent consideration. This compares to full year 2013 diluted EPS from continuing operation of $3.09, which included the items discussed above. Adjusting for these items, diluted EPS from continuing operations in 2013 was $2.74, a reconciliation for which can be found in Non-GAAP Diluted EPS from Continuing Operations.
Operating cash flow of $548 million in the quarter compares with $41 million in the prior year. For fiscal 2014, operating cash flow of $1.56 billion compares with fiscal 2013 operating cash flow of $1.12 billion. Last year's results include (1) a $110 million settlement payment from the UK National Health Service, (2) approximately $75 million from divested businesses, and (3) a discretionary pension contribution of $500 million.
Free cash flow of $288 million for the fourth quarter was an improvement of $481 million when compared to the year-ago period, driven by cost take-out, better working capital management, and lower pension contributions. For fiscal year 2014, free cash flow of $689 million compares with $264 million from the prior year, which includes the three items discussed in the prior paragraph.
Ending cash and cash equivalents were $2.44 billion, an increase of $389 million from March 29, 2013.
Contract awards of $4.3 billion in the quarter increased from $3.0 billion in the prior year. For fiscal 2014, contract awards increased to $14.5 billion from $14.1 billion in fiscal year 2013.
Global Business Services (GBS)
For the fourth quarter, GBS revenue of $1.18 billion compares with revenue of $1.22 billion in the year ago quarter. Excluding $14 million from a divested IT staffing business in the year-ago period, GBS revenue decreased by 3% in constant currency as the repositioning of the company’s consulting practice offset growth in applications. On a sequential basis, revenue increased by 6% on the strength of applications and business process services (BPS). Operating margin in the fourth quarter increased to 16.3% from 10.3% in the prior year due to the company’s cost takeout efforts, productivity increases, lower restructuring, and a greater contribution from more profitable licensing contracts. Contract awards for GBS were $1.5 billion in the quarter.
For fiscal 2014, GBS revenue of $4.41 billion compares with revenue of $4.92 billion in the prior year. Excluding $216 million from a divested IT staffing business in the year-ago period, GBS revenue decreased by 6% in constant currency, primarily due to the effects of repositioning of the company’s consulting practice for increased profitability. Segment operating margin was 12.4% for the full year, an improvement when compared with fiscal 2013 operating margin of 7.7%. Contract awards for GBS were $6.1 billion during fiscal 2014.
Global Infrastructure Services (GIS)
GIS revenue of $1.19 billion in the fourth quarter was unchanged year-over-year as revenue growth from cloud, cyber and the ServiceMesh acquisition offset the impacts from price-downs and restructured contracts. On a sequential basis, GIS revenue was up 3%, driven by the ServiceMesh acquisition. GIS operating margin of 6.7% compares with 0.8% margin in the prior year. The year-over-year improvement was due to cost takeout, lower restructuring costs, and improved contract performance from our focus accounts. Contract awards for GIS were $1.8 billion during the quarter.
For fiscal 2014, GIS revenue of $4.61 billion decreased by 2% in constant currency when compared with the prior year. Operating margin of 7.4% for the year and 7.0% adjusted for the one-time reversal of contingent consideration, compares favorably with an operating margin of 2.6% for the prior year. Contract awards for GIS were $4.1 billion during fiscal 2014.
North American Public Sector (NPS)
NPS revenue of $1.00 billion in the quarter declined by 11% from the fourth quarter of 2013 primarily due to contracts which were winding down and the slow pace of new business awards. Operating margin of 10.7% compares with 10.9% in the prior year. NPS contract awards were $1.0 billion in the quarter.
For fiscal 2014, NPS revenue of $4.10 billion decreased by 12% when compared with the prior year. Operating margin of 12.2% increased from 10.5% in the prior year due to better contract management and cost takeout. NPS contract awards were $4.3 billion during fiscal 2014.
Returning Capital to Shareholders
During the fourth quarter, CSC returned $180 million to shareholders consisting of $29 million in common stock dividends and $151 million of share repurchases. CSC repurchased 2.5 million shares during the quarter at an average price of $60.63.
For fiscal year 2014, CSC returned $623 million to shareholders in the form of $118 million in common stock dividends and $505 million of share repurchases. During the year, CSC repurchased 9.8 million shares at an average price of $51.65.
CSC ended fiscal year 2014 with 145,571,442 shares outstanding on March 28, 2014.
Today, CSC’s Board of Directors approved a 15% increase to the company’s quarterly Common Stock dividend to $0.23 per share. The Board of Directors also authorized a new $1.5 billion share repurchase program.
Conference Call and Webcast
CSC senior management will host a conference call and webcast at 5 p.m. EDT today. The dial-in number for domestic callers is 877-719-9786. Callers who reside outside the United States or Canada should dial 719-325-4893. The passcode for all participants is 5785862. The webcast audio and presentation slides will be available at www.csc.com/investorrelations.
A replay of the conference call will be available from approximately three hours after the conclusion of the call until May 15, 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 5785862. A replay of this webcast will also be available on CSC’s website.
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 financial 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, are 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 79,000 employees and reported revenue of $13.0 billion for the 12 months ended March 28, 2014. For more information, visit the company's website at www.csc.com.
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 events or otherwise, except as required by law.
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