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DXC Technology (DXC) Tops Q4 Earnings, Misses Revenues

Zacks Equity Research

Computer Sciences Corporation, a fully owned subsidiary (effective Apr 1) of DXC Technology Company DXC, recently released fourth-quarter fiscal 2017. Notably, DXC Technology is a result of merger between Computer Sciences and Enterprise Services Division of Hewlett Packard Enterprise HPE, which was closed on Apr 1, 2017.

The company reported fourth-quarter fiscal 2017 non-GAAP earnings from continuing operations of $1.15 per share, which surpassed the Zacks Consensus Estimate of 85 cents. Also, earnings increased on a year-over-year basis.

DXC Technology’s stock price history reveals that the company hasn’t disappointed in a long time. In fact, over the past one year, shares of the company have risen 59.85%, outperforming the Zacks  categorized Computers – IT Services industry’s increase of just 5.87%.

Quarter Details

Though revenues were up 4.5% from the year-ago quarter to $1.889 billion, it missed the Zacks Consensus Estimate of $1.946 billion.

Segment-wise, revenues from Global Business Services (GBS) increased 10.8% on a year-over-year basis to $1.043 billion, driven by synergies from the recent acquisitions (UXC and Xchanging). Revenues from the new business for GBS came in at $1.1 billion during the quarter.

Global Infrastructure Services (GIS) revenues were down 2.3% from the year-ago quarter to $846 million, primarily attributable to growth in next generation offerings and synergies from recent acquisitions. Revenues from new business for GIS awards came in at $1 billion during the quarter.

The company’s non-GAAP operating income from continuing operations amounted to $199 million as compared to $109 million reported in the year-ago quarter. Operating margin came in at 10.5% as compared to 6%, reported in the prior-year quarter

Non-GAAP net income from continuing operations came in at $167 million during the quarter compared with $91 million reported in the year-ago quarter.

The company exited the quarter with $1.26 billion in cash and cash equivalents compared with $1.11 billion in the previous quarter. Long-term debt balance (including current portion) was $2.963 billion. Net cash provided by operating activities during the quarter came in at $173 million. Free cash during the quarter came in at $204 million.

During the quarter, the company paid $20 million as dividends.

Our Take

The company reported mixed fourth-quarter fiscal 2017 results, wherein the bottom line surpassed the Zacks Consensus Estimate while the top line missed the same.

The merger with HPE’s Enterprise Services business has opened up new avenues of growth and will help the combined entity to become a leading player in the IT services domain.

DXC Technology has been making strategic acquisitions, such as UXC and Xchanging, to strengthen its portfolio, which should drive growth over the long run.

Apart from this, increased competition, delay in government’s order renewal process and constricted federal spending are other concerns.

Nonetheless, the company’s traction in the cloud and partnerships with the likes of HCL, AT&T T, VMware and Microsoft MSFT are expected to drive growth going forward.

Currently, DXC Technology sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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