Reporting financial results for the first time since its split with Science Applications International Corp. [SAIC] in September, Leidos [LDOS] on Tuesday reported lower sales and a loss in income due to a number or reasons, most of which were “pre-announced” last week by the company.

The loss from continuing operations was $7 million, 11 cents earnings per share (EPS), the same as reported in the pre-announcement last week. A year ago earnings from continuing operations were $100 million (66 EPS). The net loss in the quarter was $3 million (4 cents EPS) versus net income of $112 million ($1.32 EPS).

Leidos’ Health and Engineering segment was the primary driver in the dismal earnings result due to a swing to a $30 million loss versus a $46 million operating profit a year ago. Loss drivers included bad debt expense related to two energy construction projects, asset impairment charges related to two commercial health acquisitions, and lower sales.

Leidos Chairman and CEO John Jumper. Photo: Leidos

The National Security Solutions segment posted lower operating profits, down 20 percent to $16 million on lower sales and increased direct costs for work assumed to be at risk.

Leidos’ sales fell 15 percent to $1.4 billion versus $1.7 billion a year ago as revenues in the Health and Engineering segment plunged 20 percent to $408 million and in the National Security Solutions segment 13 percent to $1 billion.

Health-related sales were down for a number of reasons, including program completions, few new program starts, and crimped hospital budgets due to lower reimbursements from the United States Government stemming from the troubled roll out of the Affordable Care Act. Engineering services sales were down on two construction programs nearing completion, and decreased unit deliveries and related maintenance for explosive detection systems used to screen checked bags at airports.

The struggles in the Health and Engineering segment led to the resignation of its Joe Craver, president of the segment. The company said the executive management team and the board of directors agree that the segment will benefit from new leadership. John Jumper, Leidos chairman and CEO, will be the acting head of Health and Engineering until a new leader is found.

Sales in the National Security segment were off mainly due to a ramp down of the Joint Logistics Integration program for tactical Mine Resistant Ambush Protected vehicles, the completion of several intelligence programs, the ongoing sequestration and the drawdown of U.S. military forces from overseas war theaters.

The company has a pipeline of $80 billion in business opportunities but award cycles are lengthening, Stu Shea, Leidos president and chief operating officer, said on Tuesday’s earnings call. He noted that the average time from submission to award for $100 million contracts is twice as long as last year.

Jumper said that sequestration is now affecting intelligence programs that previously were seen as less vulnerable under the austerity regime. He also said he is doubtful that Congress will get a budget deal done this year but if it does, it would provide a “general lift and less confusion about the contracting situation we’re in right now.”

Contracts are “being cut short, being reduced, [and] being canceled altogether,” Jumper said. “Total unexplainable behavior, an unprecedented behavior we’re seeing in contracting.”

Leidos offered a couple bright spots in the results with new orders and a share repurchase plan. Bookings were a strong $2.4 billion, representing a 1.7 book-to-bill ratio and stand even with sales for the year so far.

Bookings would have been stronger but the company had to de-book $700 million in the quarter, most of which will impact near-term revenues, Shea said. The de-bookings were driven by customer decisions to shorten multi-year programs, reduce full-time equivalent personnel on labor contracts, reduce product purchases, and trim back and cancel programs, he said.

Total backlog dipped 6 percent to $10 billion at the end of the quarter while funded backlog, which stood at $3 billion, was down 15 percent from a year ago.

Operating cash flow was $49 million and was impacted by a number of cash and non-cash charges, which led the company last week to lower cash guidance for the fiscal year to $150 million from prior expectations of $325 million.

Despite the weaker outlook for cash flow, Leidos announced a new 20 million share repurchase authorization, “which underscores the confidence we have in our business and our firm commitment to drive shareholder value as we move forward,” Jumper said in a statement. The share repurchase plan is in addition to $450 million in special and regular dividends already paid to shareholders in fiscal year 2014.

Guidance for the rest of 2014, which was lowered last week, remains unchanged with sales between $5.7 billion and $5.8 billion and earnings from continuing operations at between 85 cents and $1.10 EPS.