Science Applications International Corp. [SAIC] ended its fiscal year with strong earnings in the fourth quarter driven largely by lower taxes and to a lesser extent by higher operating income.
Net income soared 46 percent in the quarter to $51 million, $1.16 earnings per share (EPS), from $35 million (77 cents EPS) a year ago. Operating margins slipped 30 basis points to 5.5 percent due to lower favorable contract adjustments.
Sales increased 10 percent to $1.1 billion from $1 billion, with all of the growth organic, the most the company has had in the last four years. SAIC attributed the revenue gains to new work with NASA, the Army, and the Environmental Protection Agency, and increased logistics services, mainly for the Defense Logistics Agency.
“We continue to be encouraged by the demand signals from our customer base with a strong pipeline of contract opportunities and $15 billion of submitted proposal values,” relatively unchanged from the third quarter, Tony Moraco, CEO of SAIC, said in his prepared remarks leading off the company’s earnings call. He also said that with a new two-year budget deal agreed to by Congress that increases spending on defense and federal civilian departments in fiscal years 2018 and 2019, government customers have “more budget certainty to execute their mission priorities and plan for the future.”
Moraco also said that the budget increases give SAIC “confidence” it can meet its long-term low single-digit organic growth targets. He added that if contracts are awarded faster and there are reforms to government buying, then the company’s broad customer portfolio and its “solutions for training and simulation, military modernization and readiness, IT modernization and cyber security” increase its chances to “outperform” expectations.
Nazzic Keene, SAIC’s chief operating officer, said at the moment the company isn’t seeing a lot of new work, noting that between the submitted bid pipeline and work immediately on the horizon, it is still “the same pie.” She added that given the budget deal and higher federal spending plans, “We are optimistic.”
For the year, net income rose 25 percent to $179 million ($4.02 EPS), from $143 million ($3.12 EPS), while sales remained relatively flat at $4.5 billion, with organic growth at nearly 3 percent.
Moraco said SAIC remains in the market for potential mergers and acquisitions, noting that market consolidation is underway. Still, he said, with $4.5 billion in annual sales, the company has the scale it needs to compete effectively.
“Overall, the current market environment aligns very well to our long-term strategy so we can achieve our financial targets and continue to provide long-term shareholder value creation,” Moraco said.
Free cash flow in the quarter was $77 million and for the year $195 million. The company expects free cash flow this year to be about $250 million.
Orders in the quarter were $610 million and for the year a strong $6.7 billion, driving overall backlog up 28 percent to $10.2 billion versus $8 billion a year ago.