CACI International [CAI] recently reported solid third quarter financials that were a record for sales and earnings although growth rates slowed after a strong first half to its fiscal year.
Net income rose 5 percent to $23.4 million, 77 cents earnings per share (EPS), versus $22.3 million (74 cents EPS) a year ago, nipping analysts’ expectations by a penny. Sales increased above 6 percent to $674 million from $634.2 million a year ago. Organic growth was nearly 6 percent.
Through the first nine months of the fiscal year, CACI’s net income and sales grew at a double-digit pace.
CACI narrowed its earnings guidance toward the high end due to stronger sales in the third quarter from its business in the United Kingdom and an estimated lower full year tax rate. Net income is expected to be between $90 million ($2.95 EPS) and $93 million ($3.05 EPS) for the fiscal year.
Revenues from the intelligence community increased 8 percent in the quarter and represented 37 percent of overall sales. That growth rate is dramatically slower than the 39 percent or more in each of the last six quarters, J.P. Morgan defense analyst Joseph Nadol said in a note to clients yesterday. Business with the intelligence community “has clearly slowed, and this is consistent with what we have seen from other companies on our overage universe, such as L-3 Communications,” Nadol said.
However, company officials said on yesterday’s earnings call that the intelligence business is still growing and will continue to do so. There have been “plus-ups” for intelligence related work, and there has been a “surge” related to intelligence, surveillance and reconnaissance work, Bill Fairl, president of CACI’s business operations in the United States, said. CACI expects intelligence to be a “growth engine next year,” he added.
Despite the Obama administration’s plans to reduce the Defense Department’s reliance on private contractors for various types of support activities and bring that work in- house, CACI believes that demand for high-end contractor support will continue. Based on discussions with its customers CACI isn’t expecting any material changes once details of the FY ’10 defense budget request are released and sees organic growth continuing in the mid to high single digits, Paul Cofoni, the company’s president and CEO, said.
ACI has been relatively quiet on the mergers and acquisition front given the high cost of capital, but believes the capital markets will improve, which combined with continued low asset values for some businesses, should create buying opportunities. The key target areas for deals are in intelligence and homeland security, with cyber security and smart power two specific areas CACI is looking for acquisitions, Cofoni said.
Cofoni also said that CACI is also beginning to look at possible deal targets in healthcare information technology, an area the company already does some work, and in energy, which would be a new market for it. He said energy is an area of national security.
Funded backlog at the end of the quarter was $1.6 billion, 14 percent higher than a year ago. Free cash flow was $76 million.