We had wondered why the delay, and found out yesterday, as the earnings announcement itself was overshadowed by the other news Mike Lawrie had for us.
This posting looks solely at Q4 FY2015 earnings. And it was “back to the future” once again, with earnings beating Wall Street profit expectations (after adjusting for “this unusual item and that one-off impact”), allied to accelerating revenue declines.
Non-GAAP earnings per share, excluding exceptional items, one-offs and the like, came in at $1.26, compared with Wall Street consensus of $1.20 and actual earnings of $1.16 for Q4 FY14. Without the unusual and/or one-time items, EPS for the quarter was only $0.06.
Back in the latter days of Mike Laphen’s tenure as CEO, as the quality of CSC’s profits deteriorated, we saw earnings announcements with more and more reconciliations and explanations of “adjusting for this unusual item and that one-off impact”. Are we heading in that direction again?
There was nothing remarkable about the Q4 FY2015 earnings announcement, just a worrying set of numbers. Profits are maintained by continued cutting of costs and laying-off more and more skilled technical staff.
Revenue for Q4 FY2015 was a different story. While the US Public Sector remained almost flat with Q4 FY2014, the commercial revenue decline is accelerating, being 17% down on Q4 FY2014 in constant currency. Neither of the two segments of commercial revenue (Global Business Solutions and Global Infrastructure Services) achieved $1 billion revenue for the quarter.
The operating margins of Business Solutions for Q4 FY2015 were satisfactory at 13.5%, while Infrastructure Services showed an operating loss of just over 5% for the quarter. Mike Lawrie’s explanation of the reasons for this loss (“price-downs, restructurings and contract completions”) is plausible but not comforting for the future. These underlying issues have been heading in CSC’s direction for quite some time and will not just go away. It is hard to see how things will improve substantially unless Mike Lawrie’s optimism about the positive impact of next generation offerings turns out to be well-founded (for once?).
Lastly, new business bookings for Q4 FY2015 were at $3.4billion, down a massive 20% on Q4 .
Thus it looks like CSC can only maintain profitability by cutting loose old loss making accounts, which many would see as sensible. However, the problem is CSC does not appear to be able to turn badly performing accounts or services into profitable ones - it just gives up on them - or indeed sell new profitable services. Anyone can slash and burn and leave the wounded to the wolves. It takes imagination to create and grow something. We see nothing about the results or announcements of yet more lay offs that will change that view.
Cutting through the smoke and one-offs, our major “take away” from the earnings announcement is heightened concern about the continuing, indeed accelerating, revenue declines.
prepared by Littlejohn