CACI International [CACI] on Thursday introduced financial guidance for its fiscal year 2017 that begins on July 1 that shows strong top and bottom line growth driven by a recent acquisition but which falls short of analysts’ expectations.
The company is forecasting net income in FY ’17 between $150 million, $6.02 earnings per share (EPS), and $160 million ($6.43 EPS), versus guidance for FY ’16 between $133 million ($5.37 EPS) and $140 million ($5.65 EPS). Analysts are estimating $6.50 EPS in FY ’17.
The outlook for sales next year is between $4.1 billion and $4.3 billion. CACI is expecting between $3.7 billion and $3.8 billion in sales this fiscal year. In FY ’17 analysts are forecasting $4.4 billion in sales for CACI.
The top line growth in FY ’17 is due to CACI’s acquisition in February of L-3 Communications’ [LLL] former National Security Solutions (NSS) segment, which will add about $600 million in sales. The contribution from the L-3 business, which is forecast at flat to slightly up, is being partially offset by a 4 to 5 percent organic decline in CACI’s legacy business.
Ken Asbury, CACI’s president and CEO, said on an investor call that the company expects flat to “mild” organic growth late in the fourth quarter of FY ’17. If there is sustained stability in the market and no “strange activities on the part of Congress” or long-term continuing resolutions, then CACI will have “the ability to grow,” he said.
The company has completed a five-year addressable market survey that shows modest growth in most of its business areas, Asbury said. “We have to wait to see if this materializes.”
With a number of acquisitions in the past few years culminating with the NSS purchase, CACI has acquired new expertise and scale, enabling it to pursue larger more complex contracts. That’s the “story” from the investor call, Asbury later told Defense Daily in a telephone interview.
“The pipeline of larger quality opportunities remains very healthy,” Asbury said on the investor call. The company is “focused on a strategy of pursuing larger more complex business where customers are seeking solutions or outcomes rather than commoditized services.”
CACI has submitted a proposal for an information technology services contract slated for award late in its 2017 fiscal year that represents is largest fixed price bid ever, Asbury said. It’s this and other large long-term contracts like it that represent a “big change” for the kinds of projects that company has bid on over the past 10 years and once these “anchor contracts” are in place they will lead to future organic growth, he said.
Two major headwinds in FY ’17 include a movement away from pass through contracting by several of the company’s customers and a few customers continuing to hold competitions based solely on price, Asbury said. CACI did not bid aggressively on the low-price recompete contracts because the company is sticking to its strategy not to “chase revenue,” he said in the interview. “We’re going to go after things that will build this company over time where it is far more resilient to the changes in the market that we saw after the drawdown in the war.”
CACI had backlog of $12.9 billion at the end of its FY ’16 third quarter and has a pipeline of submitted bids worth more than $10 billion. During the next six months CACI expects to submit bids totaling more than $26 billion.
Operating cash flow in FY ’17 is forecast above $240 million.