Wednesday, 7 August 2013

CSC Q1 FY2014 results confirm our concerns about revenue and new business

CSC shares jumped 5% immediately after its Q1 FY2014 earnings release and analyst conference due to another excellent profit performance.

Earnings per Share (EPS) for the quarter came in at US$ 0.91c, being 40% ahead of the analysts’ expectation consensus of US$ 0.64c.  CSC also revised upwards its EPS guidance for full year FY14 by US $ 0.20, meaning that they expect the greater part of the Q1 over-performance to flow through to the full year. 

CSC CEO Mike Lawrie talked about the progress on the cost take-out program, Operating Margin improvements, cash flow performance, and other highlights.  He also noted he expects to continue to spend around US$30 million to US$40 million per quarter on restructuring, particularly in European operations.

But the quarter’s revenue, at US$3.26billion, was 10% below its Q1 FY13 equivalent (restated to take account of discontinued operations). It was also well below the analysts’ expectation consensus of US$3.58billion.  As a point of comparison, CSC’s revenues dropped by about 4% year-on-year throughout FY13. The annual revenue decline has now accelerated to 10%.

New Business Bookings numbers were US$2.8billion, down 30% from the US$4billion posted in Q1 FY13. Mike Lawrie said commercial new business bookings for Q1 FY14 were down 33% year-on-year, and that the book/bill ratio for the quarter was 94%, suggesting further revenue declines are likely.  He also mentioned that CSC had only won one deal in Q1 FY14 with a total contract value over US$100million.  He attributed this to a market shift towards smaller contracts.  At the same time, he was optimistic about CSC’s prospects in Cloud, Cyber and Big Data.

Mr Lawrie is aware that CSC needs to address revenue, saying “we need to begin to show growth as we exit the get-fit phase and move into the win-more phase”, talking confidently of CSC’s capabilities and offerings, and about their investments in new account executives and sales professionals.  All very good, but we note it is much removed from the comments we hear about the reality of life for CSC’s front-line troops today.

Mr Lawrie gave another assured and persuasive performance at the Analyst conference. Add to that an excellent profit performance and he has probably bought himself another quarter’s breathing space to address revenue and new business awards. The analyst community and the financial markets were obviously impressed by CSC’s results. We are less impressed and are not yet convinced things are as rosy as Mr Lawrie suggests.  We have heard CSC’s “success is just around the corner” speeches before.    To date, Mr Lawrie has driven down CSC’s cost base effectively.  We want to see some progress on revenue and new business awards.
Details of CSC’s Q1 FY2014 financial statements, accompanying slides and webcast of the Analyst call can be found on the company’s website.  A transcript of the Analyst call can be found on the website of Seeking Alpha.


Anonymous said...

The Analyst call transcript on Seeking Alpha requires you to register. A copy free of any registration is available on Edgar Online here:

The last question will be of interest to employees in the UK.

David Grossman - Stifel Nicolaus - Analyst

And just to be clear on Europe, can you provide us some indication of how both the cash flows and the margin improvement in Europe plays out over fiscal '14? And, how much visibility you have on that trend?

Mike Lawrie - Computer Sciences Corp - CEO

Yes, I don't have -- I'm not going to quote the exact numbers because we don't do that by region, but we've restructured and are continuing to restructure our business particularly in the UK, and we see us getting onto a much more profitable foundation in the UK. Our business in France continues to be profitable. That's largely a consulting business.

We have also restructured Germany to get a skill profile more consistent with the business that we see there -- things like cyber and cloud and other things are beginning to pick up in Germany. So I think, as we sort of follow through on the restructuring that we announced today around Europe, we'll begin to see some improvement across that theater, in terms of margin expansion and profitability. So it is slightly different by region, but basically, the same story across the board.

So again, I think we're trying to set this business up, get it on a very very firm foundation. The good news is there were a lot of cost savings that we could take. Thank God there was because that's allowing us to fund internally many of the investments that we need to make. And we're encouraged by that progress and the prospects for the Company to continue to expand its margins and its profitability and begin to show some growth as we get to the second half of 2014.

So with that, I thank everyone for their interest; and operator, thank you very much.

Hold onto your hats!

Anonymous said...

The question which you quote above from David Grossman of Stifel Nicolaus was from the Q4 FY2013 earnings conference on 15 May 2013, not from the Q1 FY2014 conference held this week.

Anonymous said...

Considering Liz(ard) Benison spoke only the other day of the numbers of people they are looking to bin.... this week has I am fairly sure seen far more targeted than she mentioned.

Add to that (and I say add because for sure they've chosen not to include it in the body count they are looking for) that everyone from Managed Network Services was told yesterday to look forward to being TUPE'd to AT&T.

I am guessing across EMEA the networks body count could be as high as a thousand people.

Reading all of the propaganda, all you ever see is Big Data, Cloud and Cyber.... I think these have become more than incubator LOS, but are to become the only business CSC does and everything else is for the dustbin - go read all the mouthpiece's statements from the last few months, see if you can find them mention anything else.

Anonymous said...

Fully agree that the incubators will be the only business of CSC in the future. Most investments go into those business and restructuring is most effecitve there. All other business ist cut down or out.

Anonymous said...

... then the future really does look bleak

Anonymous said...

CSC is so far of the strategic ball-game it is quite worrying. I'd love to see the R&D plans, & 5 year product & service strategy.

"Big Data", "Cloud" & "Cyber". Sounds trendy enough to keep the analysts from asking more questions. However, has anyone considered how woolly that is?

I'd be asking more questions as to the product & service vision that Lawrie & his exec team have...

Still very skeptical.

Anonymous said...

AT&T and CSC to do cloud.... anyone care?

Anonymous said...

The Gigaom article is bang on the money. Who cares?

As I said above on 9th Aug, CSC is so far off the strategic ball-game I'm very worried about the medium-term future of the company. (In fact I care about the employees and customers, far more than the company itself...)

All I can see is tactical maneouvres to minimise cost, and create positive marketing "spin", supported by the executive primary motive of mega-bonuses.

If the exec board don't realise that they are operating tactically, & are hugely lagging behind the market, then I am very very worried about CSC's future.

Even more worrying is that the market analysts can't see it either, although I expect they are more interested in short-term share prices & dividends, rather than long-term evolution & growth.

If CSC doesn't make a swift change into STRATEGIC mode very very soon, I confidently predict a rapid plunge in revenue, lost customers, and ultimately when it's cash reserves run out, a once great organisation will be filing for Chapter 11.

Anonymous said...

I'm not sure how CSC expects to execute a Cloud & Cyber strategy without in-house Networks specialists. But then, the Strategic "Vision" wasn't planned, it was agreed on a golf course.