Science Applications International Corp. [SAIC] on Thursday reported strong net income in its third quarter due largely to program performance whiles sales dipped slightly.
Net income rose 24 percent to $42 million, 91 cents earnings per share (EPS), from $34 million (72 cents EPS) a year ago, topping consensus estimates by seven cents per share. Operating margins rose a percent to 6.6 percent.
SAIC attributed the strong earnings to program execution and a lower tax rate, which was due to increased research and development credits.
Sales were down 2 percent to $1.1 billion on lower material volume in Defense Department, federal civilian agency, and supply chain programs. Work on resetting the Assault Amphibious Vehicle for the Marine Corps is slowing with the completion of the prototyping phase, SAIC said.
Orders in the quarter were stout at $1.9 billion, nearly two times sales, with total backlog of $8.2 billion, $2 billion of which was funded. Total backlog a year ago stood at $7.4 billion of which $2.1 billion was funded.
SAIC continues to stick with its long-term expectations of low single-digit sales organic growth and profit margin improvement of 10 to 20 basis points annually on average, Charles Mathis, the company’s new chief financial officer, said on an earnings call with analysts. The company also expects to generate about $240 million annually in free cash flow, he said.
Free cash flow in the quarter was $150 million and the company returned $54 million in cash to shareholders, consisting of $40 million in share repurchases and $14 million in dividends. Mathis said that acquisitions remain an option for the company to deploy its cash.
Tony Moraco, SAIC’s CEO, said on the call that the market outlook for the company’s customers has improved modestly. He said the pending continuing resolution (CR) to fund the federal government into next April “provides our customers the ability to execute their missions while adjusting to new leadership at the highest positions of our federal government.”
No material impacts to SAIC’s business are expected from the CR or transition to the administration of President-elect Donald Trump, Moraco said. He also said that there seems to be a “broad consensus” that Trump and the Congressional Republican majority might increase defense spending, including in the area of training and simulation to strengthen the readiness of military forces, and cyber security.
Moraco said the company’s long-term outlook of low single-digit organic growth fits within the expected increases in defense spending. SAIC doesn’t provide annual guidance, but Moraco said that there is potential for low-single digit organic growth in the company’s upcoming fiscal year 2018 that begins next February.
So far through three quarters of its fiscal year 2017, SAIC sales up are 6 percent to $3.4 billion due a previous acquisition, although organic revenue is down just more than a percent.