Computer Sciences Corporation (CSC, Financial) recently reported its fourth-quarter results for fiscal 2015 with earnings that comfortably beat the consensus estimate while revenues fell short. The company posted non-GAAP net income from continuing operations of $180 million, or $1.26 a share, compared to $168 million in the year-ago quarter and beating the consensus estimate of $1.20 a share. Following the results, Computer Sciences Corp shares stood at $69.19 at closing bell, but climbed to a high of $73 in after-hours trading.
Revenues Fall across Segments
While Computer Sciences Corp saw estimate-beating earnings for the fourth quarter of fiscal 2015, revenues decline 12.6% year-over-year to $2.909 billion, missing the consensus estimate of $2.975 billion. While adjusted operating income for Q4 2015 came in at $349 million, down 4.1% year-over-year owing to lower revenue base and higher operating expenses including substantial restructuring and pension-related charges, a 1.33% drop in SGA expenses helped operating margin to expand by 107 basis points.
Segmentwise, the company saw maximum decline at its Global Infrastructure Services segment, where revenues dropped 20.8% year-over-year to $929 million owing to certain contract-level modifications as well as drop in prices. However, the company posted growth in its new products, including the MyWorkStyle desktops. At the Global Business Services, revenues were down 14.9% to $980 million owing primarily to a shift in the company’s consulting business as well as completion of contracts. Concurrently, Computer Sciences Corp saw flat year-over-year revenue growth at its North American Public Sector to $1 billion during Q4 2015 as growth in business process outsourcing, Cloud and healthcare applications were offset by decline in federal and Department of Defense contracts. Further, the company logged booking of just $3.4 billion during the quarter, compared to bookings of $4.3 billion in the prior-year quarter.
During the fourth quarter, Computer Sciences Corp, which competes with other information technology service providers like Accenture Plc. (ACN, Financial), Hewlett-Packard (HPQ, Financial) and International Business Machines (IBM, Financial) paid out a total of $33 million in dividends and bought back shares worth $224 million?
Outlook for FY2016
Following the results, Computer Sciences Corp also provided guidance for fiscal 2016. The company projected flat to marginally down revenue growth in FY2016 on a constant currency basis, while non-GAAP earnings are projected to be in the $4.75 to $5.05 a share range. This compares to the consensus estimate of $4.81 a share for fiscal 2016. Further, while the company expects revenues from its North American Public Sector segment to grow slightly compared to fiscal 2015, revenues from the commercial segment are expected to be flat or marginally down.
Separately, Computer Sciences Corp announced plans to split itself into two publicly traded companies. While CSC-Global Commercial would provide IT solutions and services to non-government customers as well as Fortune 1000 companies, CSC-US Public Sector would be among the top three providers of IT, infrastructure and business services that are mission specific to state, federal and defense agencies in the U.S. The company also revealed plans for a special cash dividend payout of $10.50 a share when the split is completed in October 2015.
Final thoughts
Although Computer Sciences Corporation saw healthy earnings for Q4 2015 on the back of higher gross margins, revenues fell across all operating segments on a year-over-year basis. Further, the company’s fourth quarter profit fell sharply compared to the year-ago quarter, while its guidance for fiscal 2016 was also rather lacklustre. However, investors and experts are excited about the company’s split-up plans that would allow each new entity to focus on specific core operations and generate better revenues going ahead. While the consensus for Q1 2016 is pegged at $1.07 a share, the Computer Sciences Corp stock currently carries a ‘hold’ guidance.
