Science Applications International Corp. [SAIC] on Tuesday posted higher fourth quarter sales due to an acquisition last year while net income fell on an increase in interest expense and lower operating income.

Net income slid 22 percent to $28 million, 60 cents earnings per share (EPS), from $36 million (75 cents EPS), a penny below consensus estimates. Excluding acquisition related expenses per share earnings were 74 cents.

SAIC CEO Tony Moraco
SAIC CEO Tony Moraco

Sales in the quarter climbed 13 percent to nearly $1.1 billion from $952 million a year ago, driven by the Scitor acquisition last year. Organic revenue declined a percent on reduced materials in supply chain operations contracts and to a lesser extent the completion of a Navy technical contract, John Hartley, SAIC’s outgoing chief financial officer, said on the company’s earnings call.

Tony Moraco, SAIC’s CEO, provided a somewhat cautious near-term outlook for the overall budget environment, saying on the call that it is a “slightly improved environment” given the two-year federal budget deal enacted last year, some of the various agency budget requests and initial activity by some congressional committees. He also said that there is ongoing strong demand for proposals from customers, which is evidenced by the company’s $13 billion-plus outstanding submitted bids, and “steady and consistent sustainment” for task orders.

On the other hand, with the upcoming presidential and congressional elections in November, there may be a “stall” lasting six to nine months beginning late this summer into next spring depending on political appointments, Moraco said. He said SAIC’s “portfolio is less subjected to those elections,” and he expects to begin seeing larger contract awards in the multi-$100 million range “over the next time horizon” with some “slight delays” due to the elections.

For its fiscal year 2016, SAIC’s sales increased 11 percent to $4.3 billion from $3.9 billion due to the Scitor acquisition and new contract awards while organic revenue was flat. Net income slumped 17 percent to $117 million ($2.47 EPS) from $141 million ($2.91 EPS) due to higher interest expense and lower operating income.

Moraco and Hartley said that the company’s long-term financial targets of low single-digit organic annual growth remain intact based on the improving market environment and awards in the second half of fiscal year 2016. Hartley said SAIC expects profit margins to improve between 10 and 20 basis points annually.

Bookings in the quarter were $900 million and total backlog at the end of the fiscal year stood at $7.2 billion of which $1.9 billion was funded. A year ago total backlog stood at $6.2 billion, with $1.7 billion funded.

Free cash flow in the quarter was $99 million and for the year it was $206 million. Hartley said that going forward SAIC continues to expect to generate about $240 million annually in free cash flow, although this target will be dented by about $25 million in FY ’17 because of an extra payroll week in the fiscal year.

Share repurchases, which are SAIC’s preferred mechanism for returning cash to shareholders, totaled $50 million in FY ’16. The company’s credit agreements put a $50 million annual cap on the share repurchases but Hartley said that SAIC is paying off its debt faster than expected and will be in a position to eliminate the cap at the end of the first quarter of FY ’17, one quarter ahead of projections.

Moraco said that SAIC is willing to do acquisitions of a strategic variety rather than to “bulk” up.

SAIC announced last week that Hartley will be departing the company at the end of June. The finance chief has been commuting from San Diego where his family lives and wants to be with them full time. Moraco said that SAIC is looking internally and externally for Hartley’s successor.