Friday, 17 May 2013

Is it a case of "Back To The Future" as CSC announces Q4 FY13 earnings?



When CSC announced its Q3 FY13 profit 3 months ago, the markets were impressed and the stock price jumped 10% We were less impressed, and questioned where CSC was going. We thought the situation may not be as good as Mike Lawrie’s articulate and polished performance suggested. The reasons for our questions and concerns are outlined in our blog postings of February 6th and 11th 2013.  


Part of the answer was provided this week when CSC announced its Q4 FY13 earnings and saw its shares slump 15% in the following couple of days. .

Earnings per shareat US$1.27coutstripped Analyst expectations, primarily due to the impact of the company’s Cost Take-Out program.  Operating Profit was US$212 million or 5.7%.  Cash flow was good, helped by certain business dispositions.  So much for the positive news.

Revenue at US$3.70bn was a big disappointment, being 7.2% lower than the corresponding quarter of FY12. The revenue decline impacted all business segments; North American Public Sector declined by 7%,  Managed Services by 4% and Business Solutions by 12%.  Additionally, the revenue was below the Analyst consensus estimate of US$3.86bn, and even below the estimate of the least optimistic analyst.

New Business bookings presented an even gloomier picture. The new business won in FY13 was only US$13.8bn, down 25% from US$18.8bn in FY12. The Q4 FY13 performance, totaling only US$2.9bnwas fully 50% below the level of Q4 FY12.  Mike Lawrie did not seem optimistic about any significant near-term improvement.   There can be no sustainable revenue growth with a book/bill ratio below 1.0 and under developed (through lack of investment) services and products.

In some respects, it was as if CSC were heading back to the old days of  earnings announcements which ought to have   been left behind. This was because:


  • The  New Business bookings are disappointing
  • The  unpleasant surprise of revenue below expectations in areas of the business considered to be 'solid'.    
  • CSC fell back to its habit of explaining during the Analyst call that “without this impact and excluding that item, the profit would have been……………” 
  • CSC shares suffered a significant drop following the results announcement.
  • There was waffling from Mike Lawrie and Paul Saleh initially regarding revenue and new business, but especially in the Q&A session of the Analyst call.  Paul Saleh did not seem assured or convincing when some Analysts pressed him to explain and reconcile profitability and cash flow in its FY14 Guidance.


So where does this leave CSC?


On the one hand there is a determined and articulate CEO who has driven cost reduction and improved profitability for now, who has replaced some of the non-performing senior management of the previous régime, and who seems to take the tough decisions his predecessor avoided.


On the other hand, we hear about demoralized employees, organizational confusion and a major change program which has run out of steam. As a consequence, CSC is not selling. The Q4 FY13 results support that view.


All of which leads to the same conclusion as 3 months ago, namely that we question CSC’s ability to achieve sustainable longer-term performance.  We hope Mike Lawrie will start to prove us wrong by turning in vastly improved revenue and new business numbers, and soon.

12 comments:

Anonymous said...

This closing CSC 4th quarter fiscal year announcement was indeed just for hiding ongoing severe internal troubles from the stock market: No Growth-Strategy or future optimistic results, but strong sales decrease and loss of market relevance. Instead, a further full decline in revenue and massive numbers of employees leaving coz of that. We'll see how long those short-term stock-ratio ambitioned analysts will follow the propaganda unless the truth becomes obvious to everyone.

Anonymous said...

No more opportunities? There are still some units at CSC where billability is low. Higher billability would lead to a better oi. But there are lacks of profitability even when billability an price are better than benchmark. CSCs overhead is so huge and internal processes are so expensive. Reducing overhead in local reagions lead to overhead in new areas!
Lawrie should do it right - not light. A very, very long way to go.

Anonymous said...

What about West Europe Q4 FY13 results ? Are they in line with the expectations ?

Anonymous said...

Q4 results in summary are here http://assets1.csc.com/investor_relations/downloads/CSC_Q4_FY13_Earnings_Call.pdf

There is no breakdown by geography.

Anonymous said...

Thanks, I asked the question because I've been told that France results would be very bad given that partners/managers were spending most of their energy in trying to save their position in the new organisation rather than developing business...

Anonymous said...

Re question from anonymous "What about West Europe Q4 FY13 results?"

No breakdown is given but in the Analyst Q&A session, Mike Lawrie said "France continues to be profitable" in answer to David Grossman of Stifel Nicolaus.

How long France will remain profitable under its current leadership is another question!!

Anonymous said...

I know the UK employees still feel confused and demotivated..at least the ones I speak to !

Clearly they know how to take cost out, but growing the top line in this competitive market is tough for anyone so my guess is they are looking to steady the ship so they can find a buyer, and the CEO and his chums sail away into the sunset will millions of $ each - while my old friends and colleagues who work hard and have shown long term loyalty to the company get shafted.

I just hope for the sake of those left they don't get sold to IBM.

Anonymous said...

CSC in the UK, which contains a fair amount of EMEA leadership is in chaos and stasis.

Far too many clueless managers and executives focused only on safeguarding their jobs, as they are struggling to find jobs in the open market, at the expense of capable and effective employees.

It's about time the corporate leadership realised that they need to rip out the middle managers and country / region execs and their cronies and start fresh. Last years redundancies and subsequent job losses should have been executed with these people top of the list. In allowing them protection, CSC has not only lost a year, but has enabled another 12 months of new business stagnation.

Short term cost cutting at the expense of long term capability, effectiveness and success. The corporate leaders need to cut through the shroud of BS from regional leaders / middle managers and realise that its these groups that are responsible for CSC's predicament.

Anonymous said...

The cost cutting continues, with Liz Benison announcing 'up to 750potential redundancies' today, 7 June '13.

That'll help morale.

Anonymous said...

You know what they say, the beatings will continue until morale improves.

Anonymous said...

And today, GBS Consultancy have been asked to join a new wave of VR pleasure

Alma said...

This is cool!