Computer Sciences Corporation (CSC)
F1Q11 (Qtr End 07/02/10) Earnings Call Transcript
August 11, 2010 11:00 am ET
Bryan Brady – VP, IR
Mike Laphen – Chairman and CEO
Mike Mancuso – CFO
Alban Gashi – Credit Suisse
David Grossman – Stifel Nicolaus
Adam Frisch – Morgan Stanley
Ed Caso – Wells Fargo Securities
Karl Keirstead – Kaufman Bros.
Sri Anantha – Oppenheimer
Jason Kupferberg – UBS
Joseph Foresi – Janney Montgomery Scott
Tien-tsin Huang – JPMorgan
Previous Statements by CSC
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Good day, everyone and welcome to the CSC fiscal year 2011 first quarter earnings conference call. Please note today’s call is being recorded. For opening remarks and introductions, I’d like to turn the conference over to Mr. Bryan Brady, Vice President of Investor Relations. Please go ahead, sir.
Thank you, operator. Good morning, everyone, and a warm welcome to CSC’s earnings call for the first quarter of fiscal year 2011. We issued our financial results earlier this morning, so hopefully you had a good opportunity to review them.
With me today are Mike Laphen, our Chairman and Chief Executive Officer and Mike Mancuso, our Chief Financial Officer. As usual, this call is being webcast at csc.com and we have also posted slides to our Web site to accompany our discussion.
On slide two, there is a reminder that statements made during this call that are not historical facts may be considered forward-looking statements under the Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to known and unknown risks and uncertainties, which could cause actual results to differ materially.
Additional information concerning these risks and uncertainties is contained in the Company’s filings with the SEC. The copies of these filings are available from the SEC, from our Web site, and from our Investor Relations department.
Slide three acknowledges that CSC’s presentation includes certain non-GAAP financial measures. In accordance with SEC rules, a reconciliation of these metrics to GAAP metrics is included in the tables of the earnings release and in the appendix to our slides. Both documents are available for your review at the Investor Relations section of the CSC Web site.
Finally, I’d like to remind our listeners that CSC assumes no obligation to update the information presented on this conference call, except, of course, as required by law.
Now, if you kindly move to slide number four, I am pleased to turn the call over to Mike Laphen.
Thank you, Brian and good morning, ladies and gentlemen and thank you for joining us today as we discuss our first quarter financial results. My remarks this morning will focus on three areas
First, I will share with you my assessment of our first quarter financial performance. Second, I’ll address some topics we believe are on the minds of our investors. And finally, I will provide our overall sense of broader marketplace and the resulting implications on our business for the remainder of our fiscal year ‘11. As usual, when I finish Mike Mancuso will add some color and detail to our numbers. And then we’ll move on to take your questions.
On our last call we reported very strong fiscal year performance, and indicate that we were optimistic about our prospects for the new fiscal year. We can now report a solid result for our first quarter and then our optimism for continued improvement this fiscal year remains intact.
The highlights of our first quarter are shown on slide five. In line with our expectations we continue to see top line improvement this quarter achieving positive growth year-over-year as reported.
Both our North American public sector and our managed services sector reported 2.2% increases in revenue. Our business solutions and services sector revenues experienced a slight decline of 2%, however net of the effects from a disposition it also grew by 2.5%.
So, all three lines of businesses demonstrated top line growth. Our long-term profitability program again delivered results. Operating income increased by 5.7% and operating margin rose to 7.1% a 32 basis point improvement year-over-year.
With the improved operational performance, EPS grew at a rate greater than revenue and increased to $0.91, up 7% year-over-year. This positive EPS result was achieved despite an effective tax rate increase of some 300 basis points year-over-year.
Cash performance also improved as we reduced the variability of our quarterly cash flows. While cash flow was negative as it is the norm for our first quarter, free cash flow improved by some $144 million year-over-year. This improvement reflects our continued focus and success in cash management across the corporation.
On the new business front, bookings were $3.2 billion, down $300 million year-over-year. Continuing delays in the U.S. Government’s acquisition process were the primary cause of the lower bookings number.
Some particularly noteworthy bookings included important wins at UBS, the Swiss financial services giant and at the National Oceanic and Atmospheric Administration or NOAA. UBS is now one of our largest outsourcing relationships in the banking and capital markets industry.
At NOAA, our North American Public Sector was awarded a prestigious $317million high performance computing contract that supported NOAA’s environmental modeling program to improve the accuracy of global and regional climate models. These wins as well as other recent start-ups, including Zurich will contribute to our revenue profile in the second half.
Turning to slide six; I would now like to discuss the investor topics, I referenced earlier. There have been numerous media reports on the potential effect that growing deficits might have on government spending. In addition, there have been several announced directives related to government contracting in general and some on IT specifically.