Gov Biz Boosts CSC

IT outsourcer Computer Sciences Corp. (CSC) (NYSE: CSC) reported a 5.1 percent increase in revenues, thanks largely to government business and European outsourcing.

Yesterday the company reported fiscal first-quarter 2005 earnings of 58 cents a share, or $110.4 million, on revenues of $3.7 billion. That's down from the prior quarter, when the company earned $1.01 a share, or $190.6 million, on revenues of $4 billion.

But the company did manage to improve on last year's results. Last year, it earned 49 cents a share, or $92.3 million, on revenues of $3.55 billion during its fiscal first quarter.

"Our performance is slightly ahead of plan," chairman and CEO Van Honeycutt said on yesterday's conference call.

"The performance of our European outsourcing activities and U.S. federal sector activities were the primary drivers of our quarterly revenue growth," he noted. "The company announced $4.9 billion in new contract awards, led by Sears Roebuck and Co. and the Federal Aviation Administration."

CSC has $2.5 billion booked so far for the current quarter, mostly from Zurich Financial Services and Aon Corp. (NYSE: AOC), Honeycutt said. "Our legacy in both the [U.S. Department of Defense] and civilian service agencies position us very well to continue."Revenue for the current quarter should be up 7 to 9 percent, Honeycutt said. He predicts annual revenues will climb 8 percent to 10 percent, putting the company in a position to earn $3.10 to $3.20 a share on revenues of $16 billion to $16.25 billion for the year.

There wasn't much negative to find in CSC's results, outside of statements related to its free cash flow -- an important metric because it represents the cash that is available for CSC to spend after paying its bills for ongoing activities and growth.

"The major negative that investors could focus on is that free cash flow (FCF) of -$245 million was well below expectations and CSC's comments last quarter of -$100 million (or less)," writes Legg Mason Inc. analyst William R. Loomis in a note to investors this morning.

The company's FCF projection for the 2005 fiscal year is between $350 million and $400 million.

— Evan Koblentz, Senior Editor, Next-Gen Data Center Forum0