Weak Bookings Indicate Organic Growth Will Be Hard for CSC in Near Term

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Computer Sciences Corporation reported fiscal fourth quarter results that were in line with analysts’ expectations. As was the case in the past few quarters, fourth-quarter results had many moving parts as management is still rightsizing operations. The company reported solid improvement in operating margin, partly offset by weak revenue and booking growth.

Operating income came in at $212 million (5.7% margin) against a loss of $98 million in the year-ago period. Given the company’s recent costreduction initiatives, focus on higher-margin assignments, and improvement in contract underwriting process, we expect operating margins to expand in the coming quarters. CSC’s fourth-quarter revenue declined 7% on a constant currency basis to $3.7 billion, with the company reporting lower revenue across all its three segments.

Investors weren’t surprised to see weak performance from the company’s public sector and consulting businesses, owing to sluggish end markets. Public sector business continues to face headwinds from sequestration while tight discretionary spending negatively affected the consulting business. With respect to outsourcing, the overall demand environment remains stable and CSC’s poor results are largely due to internal issues.

New bookings during the quarter totaled $2.9 billion, down from $6.1 billion in the year-ago period. The company won few large recompetes last year, which hurt the numbers this year. However, even after accounting for these recompetes, we think CSC’s numbers are below par. The firm’s weak bookings indicate that the growth will remain sluggish in the near term.

 

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