Leidos [LDOS] on Tuesday ended a strong year with mixed results in its fourth quarter as net income fell despite strong sales growth.

Net income in the quarter slid 11 percent to $176 million, $1.23 earnings per share (EPS), from $197 million ($1.37 EPS) a year ago. Excluding acquisition-related and certain other costs, adjusted earnings of $1.56 EPS in the quarter were four cents below consensus estimates.

At the operating level, earnings were lower on a steep drop in profit at the Civil segment on fewer deliveries of security products and to a lesser degree by a decline in the Defense segment. Operating margin slipped 110 basis points to 5 percent.

Chris Cage, Leidos’s chief financial officer, said on the company’s earnings call that margin also fell in part due to more employees taking leave than normal and lower than normal net gains from program performance.

Sales in the quarter were up 7 percent to $3.5 billion from $3.3 billion a year ago, with organic growth up 6 percent. The growth was driven by the Health segment and the defense business, which benefited from the rampup in the Navy’s next-generation enterprise information technology modernization effort.

The ongoing federal budget continuing resolution and impacts from the COVID-19 pandemic, combined with awards that have been protested and are awaiting resolution, provided some revenue headwinds in the quarter, Roger Krone, chairman and CEO of Leidos, said on the call.

Leidos also disclosed that late in 2021 it discovered “activities” by some company employees and third parties involved in a part of the company’s business that conducts international operations  of potential violations of its code of conduct and certain laws, including the Foreign Corrupt Practices Act. Cage said an independent committee of the board of directors is investigating the violations and the company self-reported the investigation to the Justice Department, and Securities and Exchange Commission.

The outcome and potential impact of the investigation is unknown at the time given the investigation is ongoing, he said.

Overall, in 2021 sales increased 12 percent to $13.7 billion from $12.3 billion with 9 percent of the gain organic. Net income jumped 21 percent to $759 million ($5.27 EPS) from $629 million ($4.36 EPS) a year ago.

Orders in the quarter were $3.2 billion and for the year $15.5 billion for the year, driving total backlog at the end of 2021 to $34.5 billion, up 8 percent from $31.9 billion a year ago. Free cash flow in the quarter was $177 million and for the year a strong $927 million.

Leidos also initiated guidance for 2022, with sales expected to grow between 1 and 4 percent to between $13.9 billion and $14.3 billion, less than $14.4 billion expected by analysts. Adjusted earnings are expected to be between $6.10 and $6.50 EPS, well below consensus estimates of $6.85 EPS.

The outlook for sales is “cautious” given “uncertainty” around COVID and federal budgeting, Cage said.

Leidos’ board last week authorized a new share repurchase program for up to 20 million shares of the company’s stock and the company expects to be more aggressive with repurchases in 2022, Krone said. Depending on the number of shares Leidos buys back, its adjusted earnings outlook could increase another 10 to 20 cents EPS, Cage said.

Adjusted per share earnings in 2021 were $6.62.

Leidos also said it divested a small business that was part of its Dynetics subsidiary. Aviation & Missile Solutions, which was acquired by Dynetics in 2016 before Dynetics was acquired by Leidos, was sold to private investors from Huntsville, Ala., for $18 million. Krone said the Aviation & Missiles unit is a non-core business involved in systems engineering and technical assistance.

Krone said that on the acquisition front Leidos is “not enthusiastic about what is out there” and that any deals would be to add capability or access to a new customer, which are deals that “tend to be smaller.”