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Guidance Trips Computer Sciences

Katie Dean

Updated from 5:18 p.m. EDT

Computer Sciences' (CSC) fourth-quarter results beat the Street's expectations, but light guidance for the current quarter sent shares lower in after-hours trading.

The stock was recently off 2.7%, or $1.45, to $53.24 on Instinet.

Computer Sciences said late Tuesday that it made $199.4 million, or $1.05 a share, for the quarter. A year ago, the IT services company made $411.8 million, or $2.13 a share. While profit fell, the year-ago numbers include $245.2 million in income from discontinued operations.

Excluding certain items, the company earned $218.9 million, or $1.16 a share, rising from $185 million, or 96 cents a share, in the parallel quarter. On that basis, the company beat consensus numbers from Thomson First Call analysts, who were looking for $1.13 a share.

The fourth-quarter numbers do not include the adoption of FAS123, which would factor in stock-based compensation expenses.

Revenue for the quarter was $3.88 billion, matching the year-ago quarter. Analysts polled had predicted the company would collect $3.86 billion in revenue.

During a conference call with analysts, CSC executives said they are planning to reduce headcount by 4,300 employees in 2007, and 700 in 2008. Pretax restructuring charges will total $375 million.

The company said it also plans to relocate 2,000 jobs to India.

Executives said that while commercial bookings have been a bit soft, government bookings are solid.

Also, the company is being "more selective" on the deals it chooses to do, for instance, opting against participating in Medicaid contracts (its competitor Electronic Data Systems (EDS) has chosen to pursue such deals).

CEO Van Honeycutt said that the company is also looking into the possibility of acquiring another company or putting itself up for sale, depending on what is best for shareholders. The company was reportedly in buyout talks at the end of last year, which ultimately collapsed.

Looking ahead to the first quarter of 2007, CSC said EPS would be in the mid-60-cent range, excluding options, and sales will range from $3.4 billion to $3.5 billion. The company said it expects to record a first-quarter options expense of 4 cents a share. Analysts had anticipated that the company would earn 69 cents a share on sales of $3.71 billion.

For full fiscal 2007, CSC said EPS would be between $3.61 and $3.71, including options. Analysts had pegged the company to make $3.62 a share. The company said revenue would be up 2% to 3% for the year, suggesting revenue of $14.9 billion to $15 billion. Analysts were calling for $15.36 billion on the top line.

During the call, Honeycutt also addressed the latest issue troubling the financial world: the back-dating of stock options. He said CSC grants stock options annually at the end of the fiscal year, usually in May. Options are also granted from time to time for promotions and new hires. He said the company believes it is in compliance with all the rules and regulations regarding stock options practices.

CSC shares closed the regular session down 66 cents, or 1.2%, to $54.69.