SAIC [SAI] on Wednesday posted lower sales and earnings in its second quarter due to the challenging federal spending environment facing the government contractor community.

Net income fell 6 percent to $178 million, 50 cents earnings per share (EPS), versus $190 million (50 cents EPS) a year ago. Earnings were boosted by the sale of an information technology services business focused on the oil and gas industries, which added $66 million (18 cents EPS) after taxes.

Excluding the gain from discontinued operations, income from continuing operations plummeted 29 percent to $108 million (32 cents EPS) from $152 million (42 cents EPS), missing analyst expectations by 3 cents. Per share earnings were salvaged somewhat by a lower share count due to stock repurchases.

Sales in the quarter were down 6 percent to $2.6 billion from nearly $2.8 billion a year ago, with organic revenues down 7 percent.

“Our overall results for the quarter were disappointing,” Walt Havenstein, SAIC’s CEO, said in a statement. “In this challenging government contracting environment, the lack of funding for ongoing programs and for ramping up new work drove a shortfall in revenues and earnings per share.”

Analysts saw the weak sales as a harbinger of things to come.

“As the likelihood of a prolonged downturn increases, future revenues will remain the focus,” J.P. Morgan defense analyst Joseph Nadol, said in a note to clients. “While some relief might be found in margins, we do not believe it will be enough to offset the revenue pressure,” he added. Nadol reduced his EPS estimates for SAIC this fiscal year and next.

Credit Suisse analyst Rob Spingarn, pointing to company officials remarks on Wednesday evening’s earnings call that there is growth in the energy, healthcare and other government markets, isn’t sure if this will lead to a net sales gain moving forward.

Given the difficult quarter and spending environment, SAIC lowered its earnings and sales guidance for the fiscal year, with EPS now expected to be between $1.30 and $1.40, down a nickel on the low end and six cents on the high end of the range from the previous outlook. Sales are forecast between $10.6 billion and $11 billion, versus between $11 billion and $11.5 billion previously.

The drop in earnings in the quarter was driven by higher interest expense and a 5 percent decline in operating income at the Defense Solutions segment, the company’s largest operating segment. Sales at Defense Solutions fell 6 percent to $1.1 billion, due to less work on an infrastructure support services program for DoD, less activity on the Army’s Brigade Combat Team Modernization contract, and the completion of a systems development and implementation contract for New York City.

Sales at the Health, Energy and Civil Solutions, and Intelligence and Cybersecurity Solutions segments were also down. Operating income at Health, Energy and Civil Solutions was essentially flat while Intelligence and Cybersecurity was up nearly 9 percent on cost efficiency efforts and strong program performance.

Overall backlog increased 12 percent to $17.7 billion while funded backlog decreased 6 percent to $5.3 billion.