Wednesday, 10 August 2016

CSC Q1 FY17 earnings....or into the last quarter of the game


CSC announced their Q1 FY17 earnings. In the analyst call at which the results were announced; to use a sporting analogy, they gave the impression of a soccer team going into the last few minutes of their last match with a one goal lead which they want to preserve at all costs.

The prize at the end of the game, if they can preserve the lead, is promotion to the top tier with the merger with HPE Services. This will give CSC a new start amongst the big players, having been relegated to market mediocrity by earlier mismanagement.   So one
can understand that Messrs Lawrie and Saleh are doing their utmost to avoid any errors which could jeopardize this future.

So it was no surprise that the results showed a profit in non-GAAP accounting terms, which is what Mike Lawrie addressed, along with further earnings growth. The operating loss in GAAP accounting terms barely got a mention. It was as though GAAP accounting standards, on which all proper business reporting is done, are not worth the bother. 

The  quarter's earnings exceeded analyst expectations, as they usually do. The novelty this time being the Year-on-Year revenue growth of around 8%. This was due to the revenue of the recent
acquisitions being consolidated into the results. There was no
organic growth. New business bookings were lacklustre, but
Mike Lawrie pointed out that if one takes account of a business
booking which slipped into Q2, things look much better.

Mr Lawrie gave his usual upbeat and often repeated commentary about 'tremendous growth' in next-generation services without quantifying the level of revenue. He disclosed that CSC has won a large Business Process Services contract in the insurance industry with MetLife. But gave no financial figures on the deal. It looks to be good news as it gives the company a chance to start making up for lost ground in a segment in which CSC could have been a market leader and some would argue should have been a market leader.

The analysts' questions did not pose any real challenge to Messrs
Lawrie and Saleh,  who must have finished the earnings conference
with the feeling of a job well done, safe in the knowledge that
their one goal lead was still intact, while the clock was running down and they had moved closer to winning the match.