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Wednesday, June 14, 2017

Science Applications (SAIC) Q1 Earnings Beat, Revenues Miss

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Science Applications International Corp. SAIC reported first-quarter fiscal 2018 adjusted earnings of $1.08 per share, which increased 35% from the year-ago quarter and also beat the Zacks Consensus Estimate by 8 cents.

However, revenues decreased 9% from the year-ago quarter to $1.10 billion and missed the Zacks Consensus Estimate of $1.11 billion.

Shares decreased almost 10.07% in pre-maket trading, following the earnings announcement on Jun 12.

We note the shares have massively underperformed the Zacks IT Services Industry on a year-to-date basis. While the stock lost 8.4%, the industry gained 11.3% over the same time frame.

Quarter in Details

Per management, one of the reasons for declining revenues was an additional week in the prior-year quarter. Revenues contracted 2% when the numbers of that week were adjusted.

Customer budget constraints and contract losses were two other reasons cited for the not-so-impressive performance. However, the negatives were partially offset by platform integration programs yielding higher revenues and a new information technology contract supporting the U.S. Army.

Net bookings for the quarter were approximately $1.3 billion, which reflects a book-to-bill ratio of approximately 1.2 in the quarter. During the quarter, the company won contracts from the U.S. Environmental Protection Agency, U.S. Intelligence Community, U.S. Navy – Space and Naval Warfare Systems Center Atlantic and NASA GSFC Omnibus Multidisciplinary Engineering Services.

The estimated value of proposals submitted by the company is approximately $13.2 billion, down from $2.3 billion from the last quarter.

Adjusted EBITDA declined 15.1% year over year to $73 million. EBITDA margin contracted 50 basis points (bps) on a year-over-year basis to 6.6%.

Adjusted operating income margin contracted 30 bps to 5.7% in the reported quarter. However, including acquisition and integration costs in the year-ago quarter, reported operating margin expanded 30 bps, reflecting benefits from cost savings initiatives.

Balance Sheet & Cash Flow

Science Applications ended the quarter with cash and cash equivalents of $207 million.

Total debt was over $1 billion, which equates to a leverage ratio of approximately three times debt-to-adjusted EBITDA at the end of the reported quarter.

Operating cash flow was $88 million and free cash flow was $84 million compared with $62 million and $58 million in the prior quarter, respectively. The company spent $52 million in cash dividends and for repurchasing shares and repaid $9 million of debt in the quarter.

Outlook

Management expects EBITDA margin to be 10 bps lower than the year-ago quarter, impacted by platform integration programs.

The company expects fiscal 2018 revenue run rate to be almost in line with fiscal 2017.

The company positively revised free cash flow estimates for fiscal 2018 to $240 million, primarily based on excess tax benefits on stock-based compensation.

Science Applications expects to pay dividends worth $55 million and make total debt repayments of approximately $25 million. The remainder of the cash in excess of $150 million will be used to buy back shares and for acquisition purposes.

Zacks Rank & Stocks to Consider

Currently, Science Applications has a Zacks Rank #3 (Hold).

Better-ranked stocks in the broader sector include Applied Optoelectronics, Inc. AAOI, DST Systems DST and Dassault Systemes DASTY. While Applied Optoelectronics sports a Zacks Rank #1 (Strong Buy), DST Systems and Dassault Systemes carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rates for Applied Optoelectronics, DST and Dassault is currently projected to be 20%, 10% and 11.9%, respectively.

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Zacks Investment Research

June 14, 2017 at 02:01AM

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from Zacks Equity Research

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