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The earnings call was what we have come to expect from CSC. There were lots of confusing explanations about what the results would have been “without this impact and excluding that item” .
The results in themselves were mixed. There was a welcome increase in new business wins and good cash flow performance, but a year-on-year revenue decline. CSC’s margin performance, excluding the NHS and goodwill impairment, improved compared to the recent past. However, this cannot be taken as good news without understanding how it was achieved. CSC watchers are now painfully aware that many of the cost reductions which CEO Mike Laphen announced from 2008 onwards were in fact cuts in vital investments for the future.
CSC announced EPS (excluding the NHS write off and goodwill impairment), of $1.35 per share, compared to the latest analysts’ consensus of $0. 58. It looks good on the surface. However, $0.80 of the $1.35 EPS comes from a tax credit (sounds familiar??). Without this tax credit the EPS would have been $0.55 or just below the latest consensus and well below the consensus of 90 days ago.
The good news in the announcement was the absence of any more major shocks. There was a further goodwill write-off of $60million in Healthcare but this is minor compared to the $2.7billion goodwill write-off in Q2 FY2012 and the $1.5billion NHS write-off announced at the end of December. CSC says it has now written off all the goodwill relating to the Healthcare sector, but that there has been no write off of goodwill arising from the recent iSoft acquisition, It will be interesting to see if this is still the case in 12 months time.
The really good news for shareholders is that this was Mike Laphen’s last earnings call and that CFO Mike Mancuso is expecting to leave CSC in 3 months. We wonder how much of the 20% stock price increase is due to their departures and the nomination of Mike Lawrie as the new President and CEO.
We hope Mike Lawrie can quickly re-establish CSC’s credibility with the analyst and investor communities. CSC has declined to give any Q4 FY2012 earnings guidance. This is sensible. Mike Laphen’s habit of handing out unattainable financial targets to executives is well known within CSC. Mike Lawrie has inherited enough problems without also having to deal with any unattainable Q4 profit expectations set by his predecessor.
Prepared by Will Scarlett