Information technology and business process outsourcing service provider Computer Sciences Corp. (CSC) said Wednesday its second quarter profit declined 52%, due mainly to the absence of tax benefits recorded a year-ago. Quarterly earnings, however, breezed ahead of Street expectations, benefited by lower expenses, and higher margins. Looking ahead, the company reaffirmed its outlook for fiscal year 2010.
Second quarter net income attributable to CSC common shareholders was $216 million or $1.40 per share, down from $452 million or $2.95 per share in the prior year quarter. The year-ago result included net tax benefits of $2.27 per share from resolution of prior year domestic and international tax audits.
On average, 11 analysts polled by Thomson Reuters expected the company to report earnings of $1.35 per share for the second quarter. Analysts' estimates typically exclude special items.
The Falls Church, Virginia-based company's second quarter revenues decreased 5% to $4.04 billion from $4.24 billion in the same quarter last year. Ten analysts had a consensus revenue estimate of $4.01 billion for the second quarter.
Commenting on the results, CSC chairman and chief executive officer, Michael Laphen, said, "We are pleased with our Q2 results, most notably our significant, sequential and year over year, continuing performance improvements in cash flow, operating income, and margin rate. Additionally, new business awards in the quarter also increased sequentially and that momentum continues into the third quarter."
North American Public Sector revenue for the quarter rose 8.5% to $1.62 billion over a year ago. However, revenue from Managed Services Sector fell 12.5% to $1.58 billion, while Business Solutions and Services revenue dropped 10.7% to $0.86 billion in the second quarter last year.
Operating income grew 21% to $341 million from $282 million a year earlier. Operating margin improved 179 basis points to 8.44% for the latest quarter.
For the quarter under review, the new business awards totaled $4.58 billion.
Total costs and expenses for the second quarter declined 7% to $3.78 billion from $4.05 billion in the prior year quarter.
Among recent contract wins, the company said last week that it signed a contract with defense contractor Raytheon Co. (RTN) to provide a range of information technology support services. Financial terms of the deal were not disclosed. It would replace an expiring 10-year contract between the companies, and has a five-year base period with two one-year options. The contract runs through February 2015.
The company said on November 4 that it received a task order from the U.S. Agency for International Development to provide information technology infrastructure engineering support services. The task order, awarded to CSC during the company's second quarter of fiscal 2010, has a one-year base period and four one-year options with an estimated five-year contract value of $200 million.
CSC revealed in October that it was one of the seven companies awarded a blanket purchase agreement for information technology support from the U.S. Environmental Protection Agency. The agreement has a seven-year performance period and an estimated maximum total ceiling value of $955 million for all firms.
In October, the General Service Administration's Federal Systems Integration and Management Center awarded the company a task order to provide cyber training in support of the Defense Cyber Investigations Training Academy in Linthicum. The order has an estimated total five-year value of $85 million. CSC received a $162 million contract from NASA in September to provide aviation related services.
For the first half of 2009, CSC posted net income attributable to common shareholders of $346 million or $2.26 per share, compared to $572 million or $3.74 per share in the previous year period.
Revenues for the period declined to $7.94 billion from $8.68 billion in the prior year period.
For fiscal year 2010, CSC continues to expect earnings of $4.80 to $5.00 per share, and revenue of $16.0 billion to $16.5 billion. The Street currently estimates the company to report earnings of $4.94 per share on revenue of $16.28 billion for the year.
CSC's rival, Hamilton, Bermuda-based Accenture Plc (ACN) reported that its profit for the fourth quarter declined over last year, hurt by the negative impact of unfavorable foreign-exchange rates. Looking ahead, Accenture provided its financial outlook for the first quarter, and fiscal 2010, indicated to come in below current Street expectations.
CSC closed Wednesday's regular trading session at $54.60, up 80 cents or 1.49% on a volume of 1.02 million shares. However, in the after-hours, the shares lost 84 cents or 1.54%.
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