DXC Technology (DXC) Q2 Earnings & Revenues Miss Estimates

DXC Technology (NYSE:DXC) reported weak second-quarter fiscal 2020 results wherein both the bottom line and top line lagged the Zacks Consensus Estimate. Moreover, both figures decreased on a year-over-year basis.

The company reported non-GAAP earnings of $1.38 per share, which missed the consensus estimate of $1.44. The figure also declined from $2.02 reported a year ago.

At $4.85 billion, revenues fell short of the prior-year quarter’s number by 3.2% and also slipped 0.8% on constant currency basis. Moreover, the metric lagged the Zacks Consensus Estimate of $4.92 billion.

Continued decline in traditional infrastructure business, and currency headwinds affected revenues.

Moreover, delays in and loss of several large deals, particularly in the Americas and the U.K., which were expected to close during the fiscal second quarter, hurt the top line.

Quarter in Detail

Segment wise, revenues from Global Business Services (“GBS”) jumped 8.2% on a year-over-year basis to $2.29 billion, reflecting strength in the Luxoft business. Contribution from Luxoft more than offset foreign exchange headwinds, which affected revenues by 2.3%. The acquisition of Luxoft also boosted the company’s digital revenues, which soared 52% year over year to $1.51 billion.

During the quarter, DXC Technology also announced a partnership with Alphabet’s (NASDAQ:GOOGL) Google Cloud to aid and enhance the digital modernization journey of enterprise clients on Google Cloud Platform.

Notably, the company won $1.9 billion worth of new business awards for the GBS segment.

Global Infrastructure Services (“GIS”) revenues during the fiscal second quarter came in at $2.57 billion, down 11.6% year over year, reflecting a decline in DXC Technology’s traditional infrastructure business. A foreign exchange headwind of 2.5% was also a dampener.

During the quarter, the company won $1.9 billion worth of new business awards for the GIS segment.

In the fiscal second quarter, DXC Technology acquired independent service management and security solutions provider, and leading ServiceNow (NYSE:NOW) partner — Syscom. This is expected to boost its security solutions offerings.

Industry IP and BPS revenues witnessed 0.3% year-over-year growth.

Margins

Adjusted EBIT margin was 10.9%, contracting 500 basis points year over year. Continued delays in delivery cost actions, and cost overruns on some European transformation contracts led to weak profit performance.

Non-GAAP income from continuing operations was $492 million compared with $749 million a year ago.

Balance Sheet and Other Financial Metrics

The company exited the quarter with $2.88 billion in cash and cash equivalents compared with $1.90 billion in the previous quarter. Long-term debt balance (net of current maturities) was $7.7 billion.

Adjusted free cash flow was $739 million compared with $72 million in the prior quarter.

During the fiscal second quarter, the company returned $306 million to shareholders through share buybacks and dividend payments.

Outlook

DXC Technology expects currency headwinds, delays in the completion of several deals and pressure from its traditional business to negatively impact fiscal 2020 results, forcing the company to cut view.

Moreover, certain customers are placing revenue opportunities on hold due to delivery execution issues. This is expected to reduce full fiscal year revenues by $250 million.

Also, a reduction of $175 million is expected to accommodate the disruptions related to strategic alternatives for three of its businesses (U.S. State, local health and human services business; workplace; and mobility business) that the company plans to undertake.

For fiscal 2020, DXC Technology now estimates revenues of $19.5-$19.8 billion instead of $20.2-$20.7 billion.

It expects full-fiscal non-GAAP earnings in the range $5.25-$5.75 per share, down from previously expected $7-$7.5, due to lower revenues and delays in cost savings.

Zacks Rank and A Key Pick

DXC Technology currently has a Zacks Rank #4 (Sell).

A better-ranked stock in the broader technology sector worth considering is Alteryx, Inc. (NYSE:AYX) , sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Alteryx is currently pegged at 39.85%.

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