Improved contract performance combined with the lack of restructuring and separation costs related to a corporate split a year ago propelled Science Applications International Corp. [SAIC] to higher earnings despite a drop in sales in the second quarter, the company reported on Tuesday.

Net Income soared 36 percent to $34 million, 70 cents earnings per share (EPS), from $25 million (50 cents EPS) a year ago, beating consensus estimates by two cents. Operating margins improved nearly 2 percent to 6.2 percent.

SAIC CEO Tony Moraco
SAIC CEO Tony Moraco

Sales fell 8 percent to $952 million from $1 billion a year ago due to the loss of a Defense Department information systems program, completion of a technical support contract for the Army Reserve and National Guard, and lower revenues on DoD contracts stemming from delays in the release of contract funds.

J.P. Morgan aerospace and defense analyst Joseph Nadol said in a research note on Wednesday that, overall, SAIC delivered “solid performance in a challenging environment,” adding that the company can achieve low-double digit per share earnings growth for the next few years.

Tony Moraco, SAIC’s CEO, described the ongoing challenges during the company’s earnings call Tuesday.

“Since our last earnings call in early June there has not been a significant change in the market environment,” Moraco said. “Our customers continue to be guarded with their resources and award dollars, and shorter cycles and reduced amounts.”

Moraco also said that even with some of the large contract awards, protests quickly follow, leading to customers “in some cases to restart the entire procurement process.” Some customers are taking more time to develop solicitations and select winners to lessen the chance of a protest, all of which is further delaying awards, he added.

Orders in the quarter were $865 million, for a 90 percent book-to-bill ratio, with backlog at $6.5 billion, down $150 million since the start of the fiscal year. Funded backlog stood at $1.8 billion, up more than $100 million since the beginning of the fiscal year. Free cash flow was strong at $62 million.

SAIC doesn’t provide detailed guidance and Moraco said that it’s unclear whether there will be the usual spike in contract activity by the federal government as its fiscal year winds down this month and the new fiscal year most likely begins in October under a Continuing Resolution.