Thursday, 13 August 2015

Ground Hog Day ...... Or CSC 1 FY2016 Earnings Release



Many of our readers will have seen the film "Groundhog Day"
featuring Bill Murray and Andie McDowell.

A film in which cynical and unpleasant TV presentor keeps reliving 

the same day over and over again. Over time, this experience 

makes him a better person.


We are having our Groundhog Days with CSC Earnings Releases, 

but nothing is getting better in our opinion.

The latest Groundhog Day, on August 11, concerned Q1 FY 2016 

earnings. And we relived the past once more. EPS was $1.11, up 

8% and $0.10 over analysts' expectations. Operating Margin was up 

by 0.20%. Free Cash flow was $120 million for the quarter, up $50 

million, though one analyst said he thought this had more to do 

with CSC changing its definition of free cash flow, and less to do 

with superior operating performance.

But revenue was down 14.7% year on year, somd $50 million below expectations, and new business bookings were a lacklustre $3.2 billion. Mike Lawrie attributed this to "currency headwinds" and the fact that Q1 last fiscal year had an extra week, But do not be fooled, revenue is still declining at CSC, irrespective of Mr Lawrie's explanations.

Messrs Lawrie and Saleh did their usual job of talking up market changes,  next generation offerings, Cyber, Big Data, Mobility and so on. The only new news was the announcement that CSC is making two relatively small acquisitions to complement its portfolio of next generation offerings. Oh yes, and Mr Lawrie said he felt the US Federal Government market was in a phase of  "consolidation", by which we assumed that he meant that the plan is indeed to sell the new CSC US Public Sector Business. 

Once again, Wall Street's initial reaction was to buy CSC's story, as the share price jumped over 4%. We on the other hand remain very skeptical about the outlook for CSC.