CACI International [CACI] on Wednesday reported higher sales and earnings in its second quarter driven by organic growth and lower interest expenses and taxes.
Net income soared 23 percent to $30.3 million, $1.23 earnings per share (EPS), from $24.6 million ($1.01 EPS), topping consensus estimates by 7 cents per share. Sales edged up nearly 2 percent to $830.4 million from $815.4 million a year ago.
CACI attributed the earnings gain to organic growth from existing and new business as well as acquisitions. Net income jumped on the higher sales, lower depreciation and authorization expense, lower interest expense, and a lower tax rate.
Fresh of closing its acquisition on Monday of the approximately $1 billion government services business from L-3 Communications [LLL], CACI updated its guidance with sales for the current fiscal year pegged at between $3.7 billion and $3.9 billion, up $400 million from the previous range. The new estimates project between $400 million and $450 million in revenue from the former L-3 National Security Solutions (NSS) segment.
Net income in the fiscal year is now projected to be between $133 million ($5.37 EPS) and $143 million ($5.77 EPS), $3 million higher than prior guidance due to the acquisition of NSS. CACI said that NSS would contribute between $10 million to $15 million to the bottom line, partially offset by $6 million to $7 million in after-tax acquisition related costs in the second half of the fiscal year and about $3 million in after-tax acquisition expenses in the first half.
Sales in the NSS business have been on the decline and it has been delivering low margins. CACI said it has already achieved the $30 million in annual cost savings synergies promised with the NSS deal, bringing the segment’s margins in line with its own excluding transaction costs. Those savings will immediately improve the competitive posture of the business, Ken Asbury, CACI’s president and CEO, said on Thursday’s earnings call.
This improved posture also boosts the probability of winning business where the two companies are competing jointly, Asbury added.
Asbury pointed out that L-3 retained some portions of NSS that were a “drag” on the business but are not core to government services. The core information technology and intelligence community services businesses that CACI acquired are areas where “money is flowing into,” he said.
Mergers and acquisitions remain a top priority for CACI’s capital deployment, Asbury said, adding that with the company’s current debt leveraging the focus will be on getting “the most out of” the new business. CACI will still be looking to add capability, new customers, and find ways to further “distinguish ourselves in this market,” he said regarding acquisitions. Asbury doesn’t expect another big acquisition in its immediate future. CACI paid L-3 $550 million for NSS.
Bookings in the quarter were $541 million and total backlog at the end of December stood at $10.4 billion, up 6 percent from a year ago.