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Why Is DXC Technology Company. (DXC) Down 8% Since Last Earnings Report?

A month has gone by since the last earnings report for DXC Technology Company. (DXC). Shares have lost about 8% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is DXC Technology Company. due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

DXC Technology Tops Q1 Earnings & Revenue Estimates

DXC reported first-quarter fiscal 2022 non-GAAP earnings of 84 cents per share, beating the Zacks Consensus Estimate by 12%. The bottom line also soared 300% from the prior-year quarter’s earnings of 21 cents per share, mainly driven by increased margins and lower interest expenses and tax rate, which more than offset the negative impact of reduced revenues.

Revenues of $4.14 billion surpassed the consensus mark of $4.11 billion, but declined 8% year over year. The unfavorable year-over-year comparison might be due to the spin-off and sale of its U.S. State and Local Health and Human Services business to Veritas as well as the healthcare software business to Dedalus Group in 2020.

Quarter in Detail

Segment wise, revenues from Global Business Services (“GBS”) slid 13.2% on a year-over-year basis to $1.89 billion. Divestiture of the HHS business last October affected revenues from this segment. On an organic basis, the division’s revenues increased 2% year over year, primarily aided by the strong performance of Analytics and Engineering, and Applications offerings.

Global Infrastructure Services (“GIS”) revenues during the fiscal first quarter came in at $2.25 billion, down 3.2% year over year, reflecting declines in IT Outsourcing and Modern Workplace. However, growth in Cloud and Security was a positive.

Adjusted EBIT margin was 8%, expanding 380 basis points (bps) year over year and 50 bps, sequentially.  Margins were primarily supported by the company’s ongoing cost-optimization initiatives under which it is focusing on four cost levers — contractor conversion, scaling its GIDCs, real estate and automation through Platform X.

Balance Sheet and Other Financial Metrics

The company exited the fiscal first quarter with $2.46 billion in cash and cash equivalents compared with the $2.97 billion witnessed in the previous quarter. Long-term debt balance (net of current maturities) decreased to $4.12 billion as of Jun 30 from $4.35 billion as of Mar 31, 2021.

During the reported quarter, the company recorded operating and adjusted free cash outflows of $29 million and $304 million, respectively.

Outlook

For the second quarter of fiscal 2022, the company anticipates revenues to lie between $4.08 billion and $4.13 billion. Adjusted EBIT margin is expected in the range of 8-8.4%. DXC projects adjusted earnings per share in the band of 80-84 cents.

The company reiterated its fiscal 2022 revenue and adjusted guidance range of $16.6-$16.8 billion and $3.45-$3.65 per share, respectively.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision flatlined during the past month.

VGM Scores

Currently, DXC Technology Company. has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

DXC Technology Company. has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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