Science Applications International Corp. [SAIC] on Tuesday posted double-digit declines in its fourth quarter earnings and sales due to the loss of a contract, the drawdown of military operations in Afghanistan, and the completion of work on an Army contract.
Net income fell 23 percent to $33 million, 66 cents earnings per share (EPS), from $43 million (87 cents EPS) a year ago while operating margins actually climbed 60 basis points to 6 percent. Earnings topped consensus estimates by a penny.
Sales dropped 19 percent to $941 million from nearly $1.2 billion. Free cash flow was a strong $119 million.
The decline in income was due to the lower sales and higher interest expense associated with long-term debt acquired as part of the separation of the old SAIC into
Leidos Holdings [LDOS] and SAIC, the company said.
The drop in sales was due to the loss of the DISN Global Solutions contract, reduced information technology and logistics support volume related to Afghanistan, the completion of an Army contract and lower material and subcontract work on a Navy contract.
Bookings were just $270 million for a 0.3 book-to-bill ratio, which is below the company’s historical average for the fourth quarter. The lighter than usual bookings were due to the government shutdown last October and budget uncertainty that combined to curtail award activity, delays related to the recompete of an Army Aviation and Missile Command contract that the company won, and debookings that were $200 million above average, Tony Moraco, SAIC’s CEO, said on the company’s earnings call.
The debookings were primarily related to three Army contracts and will impact revenues over multiple years, company officials said.
Moraco said that the FY ’14 Omnibus Appropriations Act approved by Congress in January provides the company’s customers with more budget stability and the ability to prioritize and be rational and deliberate with their spending plans. He also expects improved contract award activity as the government’s fiscal year progresses, particularly later in either the fiscal year or calendar year.
Moraco’s sanguine outlook for federal contracting activity this year stands in contrast to the outlook in late March provided by Leidos, which said there continues to be a lack of clarity in funding programs and that issues such as the debt ceiling are dimming the immediate outlook (Defense Daily, March 27).
For SAIC’s fiscal year 2014, net income tumbled 38 percent to $113 million, $2.27 EPS, from $182 million ($3.66 EPS), while sales fell 14 percent to $4 billion from $4.7 billion. Backlog at the end of the year stood at $6.7 billion. Free cash flow was $167 million.
SAIC said it won’t be providing specific earnings and sales guidance going forward. Instead, it will stick with long-term projections it provided last year of low single digit organic sales growth and annual operating margin gains of 10 to 20 basis points. These long-term targets will be updated as needed, SAIC said.