DXC Technology (DXC) Q3 Earnings Beat Estimates, Revenues Miss – February 2, 2023

DXC Technology Company (DXC Quick QuoteDXC - Free Report) reported mixed results for the third quarter of fiscal 2023, wherein adjusted earnings surpassed the Zacks Consensus Estimate, while revenues fell short of the same. The company reported third-quarter non-GAAP earnings of 95 cents per share, beating the Zacks Consensus Estimate of earnings of 84 cents.

The bottom line increased 3.3% from the prior-year quarter’s earnings of 92 cents per share. The year-over-year improvement was primarily driven by lower interest expenses and a reduction in share counts, partially offset by lower sales volumes and foreign exchange headwinds.

DXC reported revenues of $3.57 billion, which marginally fell short of the consensus mark of $3.58 billion and declined 12.8% year over year. The top line was negatively impacted by a tough year-over-year comparison related to the lower resale, a perpetual license sale in the year-ago quarter, and lower-than-anticipated levels of project revenues this year.

Quarterly Details

DXC’s bookings for the fiscal third quarter were $4.78 billion, reflecting the book-to-bill ratio of 1.34. The trailing 12-month book-to-bill ratio for the company was 1.06 at the third-quarter fiscal 2023 end.

Segment-wise, revenues from Global Business Services decreased 10.7% on a year-over-year basis to $1.74 billion. On an organic basis, the division’s revenues improved 0.2% year over year. The upside was primarily aided by the strong performance of Analytics and Engineering offerings, where revenues increased 11.7% on an organic basis.

Global Infrastructure Services revenues were $1.83 billion in the fiscal third quarter, down 14.7% year over year. On an organic basis, the division’s revenues decreased 7.4% year over year. The adjusted EBIT margin was 8.7%, flat year over year, expanding 120 bps sequentially.

On its earnings call, DXC stated that it is making progress in achieving its target of reducing the cost by $500 million in the ongoing fiscal through its cost-optimization efforts. Under its ongoing cost-optimization initiatives, the company is focusing on four cost levers — contractor conversion, scaling its global innovation and delivery centers, real estate and automation through Platform X.

Balance Sheet and Cash Flow

DXC exited the fiscal third quarter with $2.09 billion in cash and cash equivalents compared with the $2.26 billion witnessed in the previous quarter. The long-term debt balance (net of current maturities) increased to $3.85 billion as of Dec 31, 2022 from $3.7 billion as of Sep 30, 2022.

In the third quarter, DXC generated operating cash flow of $625 million and free cash flow of $463 million. In the first nine months of fiscal 2023, the company generated operating and free cash flow of $1 billion and $468 million, respectively.

In the first three quarters of fiscal 2023, DXC repurchased shares worth $325 million, utilizing $600 million under its current share repurchase authorization of $1 billion.

Guidance

The company lowered its fiscal 2023 guidance. DXC now estimates revenues in the band of $14.46-$14.47 billion, down from its earlier guidance range of $14.4-$14.54 billion. It also narrowed the adjusted earnings guidance range to $3.45-$3.50 per share from the previous forecast of $3.45-$3.75 per share.

For the fourth quarter of fiscal 2023, the company anticipates revenues between $3.615 billion and $3.635 billion. The adjusted EBIT margin is expected in the range of 8.7%-9.2%. DXC projects adjusted earnings between $1 and $1.05 per share.Zacks Rank & Stocks to Consider

Zacks Rank & Stocks to Consider

Currently, DXC carries a Zacks Rank #4 (Sell). Shares of DXC have declined 6.3% over the past year.

Some better-ranked stocks from the broader technology sector are Paylocity Holding (PCTY Quick QuotePCTY - Free Report) , CDW Corporation (CDW Quick QuoteCDW - Free Report) and ServiceNow (NOW Quick QuoteNOW - Free Report) . Paylocity sports a Zacks Rank #1 (Strong Buy) at present, while CDW and ServiceNow each carry a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Paylocity’s third-quarter fiscal 2023 earnings has remained unchanged at $1.38 per share over the past 60 days. For fiscal 2023, earnings estimates have remained unchanged at $4.05 per share in the past 60 days.

Paylocity's earnings beat the Zacks Consensus Estimate in each of the preceding four quarters, the average surprise being 51.2%. Shares of PCTY have risen 5.5% in the trailing 12 months.

The Zacks Consensus Estimate for CDW's fourth-quarter 2022 earnings has remained unchanged at $2.45 per share over the past 60 days. For 2022, earnings estimates have remained unchanged at $9.75 per share in the past 60 days.

CDW’s earnings beat the Zacks Consensus Estimate in the preceding four quarters, the average surprise being 6.6%. Shares of the company have increased 5.2% over the past year.

The Zacks Consensus Estimate for ServiceNow's first-quarter 2023 earnings has been revised southward by 4 cents to $2.01 per share over the past seven days. For 2023, earnings estimates have moved upward by 19 cents to $9.17 per share in the past seven days.

ServiceNow's earnings beat the Zacks Consensus Estimate in each of the preceding four quarters, the average surprise being 6.9%. Shares of NOW have plunged 19.2% in the trailing 12 months.

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