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DXC Technology (DXC) Beats on Earnings & Revenues in Q1

DXC Technology DXC delivered better-than-expected results for first-quarter fiscal 2020. The company reported non-GAAP earnings of 21 cents per share, which beat the Zacks Consensus Estimate by 91%. The figure, however, declined from the prior-year quarter’s $1.74.

Revenues of $4.5 billion surpassed the consensus mark of $4.24 billion. However, quarterly revenues fell 7.9% year over year. Termination of certain customer accounts, price concessions and unfavorable currency-exchange rates mainly affected the top line. Currency headwinds of about $40 million also hurt revenues.

Quarter in Detail

Segment wise, revenues from Global Business Services (“GBS”) edged up 0.7% on a year-over-year basis to $2.17 billion, reflecting benefits from the Luxoft acquisition. However, the resolution of customer disputes took a toll on the segment’s revenues.

During the reported quarter, the company won $3.5 billion worth of new business awards for the GBS segment.

DXC Technology Company. Price and EPS Surprise

DXC Technology Company. Price and EPS Surprise
DXC Technology Company. Price and EPS Surprise

DXC Technology Company. price-eps-surprise | DXC Technology Company. Quote

Global Infrastructure Services (“GIS”) revenues during the fiscal first quarter came in at $2.33 billion, down 12.4% year over year, reflecting a revenue run-off and the termination of certain customer accounts.

During the reported quarter, the company won $1.8 billion worth of new business awards for the GIS segment.

Within the company’s enterprise technology stack business, IPO layer revenues declined 18.7% year over year on account terminations and price concessions. Cloud and security revenues fell 6% year over year, due to project deferrals and revenue run-offs.

Application layer revenues declined 7.5%. IPO revenues fell 18.7% year over year.

Adjusted EBIT margin was 4.2%, contracting 910 basis points year over year. Non-GAAP income from continuing operations was $190 million compared with the year-earlier quarter’s $652 million.

Balance Sheet and Other Financial Metrics

The company exited the quarter with $5.51 billion in cash and cash equivalents compared with the $3.68 billion witnessed in the previous quarter. Long-term debt balance (net of current maturities) increased to $10.33 billion as of Jun 30 from the $8.67 billion witnessed at the end of fiscal 2020.

Cash flow from operating activities came in at $119 million. Adjusted free cash flow was negative $28 million during the fiscal first quarter.

Outlook

For the fiscal second quarter, the company anticipates revenues between $4.4 billion and $4.45 billion. Operating margin is expected in the range of 5% to 5.5%. DXC projects adjusted EPS in the band of 30-35 cents.

Zacks Rank and Other Key Picks

Currently, DXC carries a Zacks Rank #2 (Buy).

Some other top-ranked stocks in the broader technology sector include Benefitfocus BNFT, Cogent Communications Holdings CCOI and Synaptics SYNA, all carrying a Zacks Rank #2 at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The long-term earnings growth rate for Benefitfocus, Cogent and Synaptics is currently pegged at 30%, 10.6%, and 10%, respectively.

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