Due to declines in its legacy defense business, government services provider Engility Corp. [EGL] on Thursday said it expects to take upward of a $250 million hit to earnings in its fourth quarter that ended on Dec. 31.
The non-cash goodwill impairment charge will be between $125 million and $250 million and is due to the end of programs and scope reductions in its defense business and associated tax impact of the charge, Engility said. Excluding the charge, per share earnings are still forecast between 15 cents and 35 cents EPS for the 2015 fiscal year.
Engility expects to report its fourth quarter and 2015 full-year results on March 3.
Sales for 2015 are still forecast to be $2.1 billion, although delays over the holidays in customer payments led the company to lower its operating cash flow guidance by $20 million to between $45 million and $55 million. Engility officials said on an investor call that the delays were due to customer invoice backlogs.
Engility also introduced preliminary guidance for 2016, with forecasted sales ranging between $2 billion and $2.2 billion and earnings between three and 18 cents EPS. The lower earnings will be due to program completions and scope reductions, increased investment on business development, and one-time impacts.
Company officials said that they expect the investments in business development this year to pay off with growth in 2017. The company is using savings from cost synergies obtained through its 11-month old acquisition of the former TASC, Inc. to pay for the growth initiatives.
The acquisition of TASC nearly doubled the size of Engility, which was spun out of L-3 Communications [LLL] several years ago, and increased its customer base in non-Defense Department federal markets.
Organic growth this year is expected to be down about 7 percent from the midpoint of the 2015 and 2015 guidance ranges.
Operating cash flow in 2016 is expected to ratchet upward to between $105 million and $115 million. The primary use of the company’s free cash flow will go to reducing debt.