Computer Sciences Corporation (CSC) reported fourth quarter 2010 EPS of $1.66, exceeding the Zacks Consensus Estimate of $1.44.
Revenue
The company’s fourth quarter 2010 revenue of $4.2 billion was up 2.4% compared to the year-ago quarter, driven by strength across all segments except Business Solutions & Services.
North American Public Sector (NPS) revenue was $1.61 billion, up 8.8% sequentially and 6.1% compared to the year-ago quarter. Managed Services Sector (MSS) revenue was $1.69 billion, up 4.4% sequentially and up 4.7% year over year. Business Solutions and Services (BSS) revenue was $0.97 billion, up 9.5% sequentially but down 4.1% compared to the year-ago quarter.
New Business
The company won $4.3 billion worth of new business awards in the fourth quarter. Of the three lines of business, NPS accounted for $1.4 billion of new business wins, BSS $0.8 billion and MSS $2.1 billion.
Operating Results
CSC recorded an operating margin of 10.10%, down 76 basis points from 10.9% reported in the year-ago quarter. The margin was negatively impacted by the substantial increase in cost and expenses that offset the positive impact of revenue growth.
Computer Sciences reported net income attributable to the company’s shareholders of $259.0 million was down 32.2% from $382.0 million reported in the year-ago quarter. The fourth quarter EPS was $1.66, down from $2.51 reported in the year-ago quarter.
Balance Sheet
CSC generated $1.2 billion of operating cash flow and $951.0 million of free cash flow during the quarter and exited the quarter with $2.78 billion in cash and cash equivalents. The company has a total debt balance of $3.74 billion, and its debt-to-capitalization ratio improved 6.5 percentage points to 36.5%.
Fiscal Year 2010 Results
Revenue for fiscal year 2010 declined 3.6% to $16.13 billion, and operating income declined 2.1% to $1.4 billion, resulting in an operating margin decline of 50 basis points.
Net income attributable to common shareholders was $817.0 million, declining substantially by 26.7%. For fiscal year 2010, CSC generated operating cash flow of $1.6 billion and free cash flow of $811.0 million.
Guidance
The company reiterated its guidance for fiscal year 2011. Computer Sciences expects new business awards in excess of $18 billion, revenue in the range of $16.8 to $17.2 billion, operating margin of between 9% and 9.25% and EPS remaining in the range of $5.30 – $5.40. Free cash flow is expected to be equal to or greater than 90% of net income.
The company reported decent fourth quarter results and provided a positive outlook for fiscal year 2010. The company is constantly growing through acquisitions that enhance its services portfolio and expand its operations in new markets.
Our Recommendation
The company has a steady flow of new business, especially in the government vertical and is financially sound.
On the other hand, we are a bit concerned about the intense competition in the IT and cloud computing space from both big and small players such as Accenture (ACN) and Hewlett-Packard (HPQ).
We currently have a long-term Neutral recommendation on the stock, with a Zacks #3 Rank.
Read the full analyst report on “CSC”
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