Weak Q2 and debt stress compound problem for UIS
Yesterday, Unisys Corporation (UIS) provided preliminary guidance for the second quarter of 2009. The company provides information technology services and solutions that offer clients with expertise in systems integration (SI), outsourcing, infrastructure, server technology, and consulting.
UIS expects revenues between $1.09 billion and $1.14 billion, down from $1.34 billion reported a year ago. Management stated that the company saw a substantial decline in services order compared to the year-ago quarter, which reflects the continued weakness in demand due to the downturn in the economy.
The unfavorable movement in foreign currency exchange rates resulted in an 8% year over year decline in revenues. Profit before taxes is estimated between $30 million and $55 million compared to a pre-tax loss of $5.0 million in the year-ago quarter. The company had approximately $475 million of cash at the end of the quarter.
Meanwhile, the company will issue common stock at a price of $1.5554 per share in relation to the debt exchange offers announced on June 30. Unisys has offered to exchange new secured notes, cash and shares of the company for existing senior notes.
UIS is struggling with a high debt level of $1,060.3 million (as of the end of the first quarter). On the last earnings call, management stated that the company is exploring alternatives to address its capital structure, particularly the $300 million worth of notes that mature in 2010. S&P recent affirmed its B rating on these notes. On a positive note, S&P raised its rating on $400 million senior notes due 2012 to B from CC due to the value and composition of the offers.
UIS’s revolving credit agreement expired in May 2009 (the company did not borrow under this facility in 2008). Given the tight credit markets along with the company’s credit rating, UIS does not hope to renew or replace its existing revolving credit facility that expired in May 2009. Hence, the company plans to use the current cash on hand to meet near-term liquidity needs.
We maintain our Hold on the stock ahead of the company’s second quarter results, expected on July 28, 2009.
Read the full analyst report on “UIS”
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