Following on from its February announcement, last Monday CSC gave its second profit warning for the fourth quarter ending March 31, 2011.
The market commentator *The Motley Fool" wrote:
The relative sizes of the revenue and EPS shortfalls suggest expenses are out of control, which may indicate service delivery challenges
The data supports Motley Fool's opinion. CSC's Q4 Earnings per Share (EPS) guidance until just 3 months ago was $1.81 to $1.86 per share. In February this was reduced to $1.57 per share. Last Monday it was further reduced to $1.12 per share, making a 40% drop in 3 months. Additionally CSC disclosed that its order intake for the quarter will be $2billion below its previous guidance.
Unlike Motley Fool, we do not believe CSC's expenses are out of control. The front-line employees and managers in CSC's business units know exactly where they are up to with expenses, as well as with revenue and service delivery issues. The problem is that CSC's Corporate and European management has chosen to ignore the warnings the front line has been giving them because it was not what they wanted to hear.
Warning lights have been flashing on the NHS program, on revenue levels and on service delivery standards for some time. But the CSC top management has simply rejected the warnings from their field managers calling them unacceptable and treating them as mere excuses for inability to meet targets. Thus CSC top management does not undertake an objective business assessment of the intelligence they get. Without an objective analysis of the situation they cannot develop effective corrective actions. Instead increased challenges and targets are handed out to an already stressed and demoralized workforce. The field knows these new targets, like the old ones, are unachievable, but they have learned that trying to explain this to the CSC top management is pointless, as they will not listen.
CSC is in serious difficulty. Continuing along the path of the past 3 or 4 years will just continue and accelerate the trend of unsatisfactory performance we see today. CSC's fortunes will only improve when its top management analyses its situation objectively as a basis for realistic corrective actions, rather than dictating what they want to hear and handing out abitrary and unrealistic targets to its business units.
Post created by Littlejohn