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.