Why Is DXC Technology Company. (DXC) Down 11.3% Since Last Earnings Report?

·5 min read

It has been about a month since the last earnings report for DXC Technology Company. (DXC). Shares have lost about 11.3% 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 the most recent earnings report in order to get a better handle on the important catalysts.

DXC Technology’s Q4 Earnings & Revenue Miss Estimates

DXC reported fourth-quarter fiscal 2022 non-GAAP earnings of 84 cents per share, missing the Zacks Consensus Estimate of earnings of $1.00 per share. However, the bottom line improved 13.5% from the prior-year quarter’s earnings of 74 cents per share, primarily driven by expanding margins and lower interest expenses and outstanding shares, which more than offset the negative impact of reduced revenues.

DXC reported revenues of $4.01 billion, lagging the consensus mark of $4.13 billion, and declined 8.6% year over year. The top line was negatively impacted by unfavorable currency exchange rates. The company’s closure of operations in Russia impacted the top line unfavorably.

Quarterly Details

DXC’s bookings for the fiscal fourth quarter were $4.8 billion, reflecting the book-to-bill ratio of 1.20.

Segment-wise, revenues from Global Business Services (“GBS”) decreased 5.4% on a year-over-year basis to $1.89 billion. On an organic basis, the division’s revenues improved 3.4% year over year. The upside was primarily aided by the strong performance of Analytics and Engineering, and Applications offerings.

Global Infrastructure Services (“GIS”) revenues were $2.12 billion in the fiscal fourth quarter, down 11.3% year over year. On an organic basis, the division’s revenues decreased 8% year over year, reflecting improvements in Cloud and Security revenues.

The adjusted EBIT margin was 8.5%, expanding 100 basis points (bps) year over year and contracting 20 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 global innovation and delivery centers, real estate, and automation through Platform X.

Balance Sheet and Cash Flow

DXC exited the fiscal fourth quarter with $2.67 billion in cash and cash equivalents compared with $2.92 billion witnessed in the previous quarter. The long-term debt balance (net of current maturities) declined to $4.07 billion as of Mar 31, 2022, from $4.24 billion as of Dec 31, 2021.

During the fourth quarter, DXC recorded operating and adjusted free cash of $271 million and $93 million, respectively. This strong cash flow performance was primarily driven by favorable timing on both payments and receipts in the quarter reported.

In fiscal 2022, the company generated operating and adjusted free cash of $1.50 billion and $743 million, respectively.

In the fourth quarter, the company repurchased shares worth $271 million, while it repurchased shares worth $634 million in full fiscal 2022.

DXC anticipates self-funded share repurchases worth $1 billion in the next year.

Full-Year Highlights

For full-year 2022, DXC reported revenues of $16.27 billion, down 8.26% year over year.

The company reported non-GAAP earnings of $3.50 per share compared with 2021’s earnings of $2.43 per share.

The adjusted EBIT margin expanded 230 bps to 8.5% in fiscal 2022.

Guidance

For the first quarter of fiscal 2023, the company anticipates revenues between $3.700 billion and $3.750 billion. The adjusted EBIT margin is expected in the range of 7.5% to 8%. DXC projects adjusted earnings between 80 cents and 85 cents per share.

For fiscal 2023, DXC estimated revenues in the band of $14,900-$15,050 billion. It projected adjusted earnings to be $3.85-$4.15 per share.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision.

The consensus estimate has shifted -13.23% due to these changes.

VGM Scores

At this time, DXC Technology Company. has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

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

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, DXC Technology Company. has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

DXC Technology Company. belongs to the Zacks Computers - IT Services industry. Another stock from the same industry, Dynatrace (DT), has gained 11.2% over the past month. More than a month has passed since the company reported results for the quarter ended March 2022.

Dynatrace reported revenues of $252.59 million in the last reported quarter, representing a year-over-year change of +28.5%. EPS of $0.17 for the same period compares with $0.15 a year ago.

For the current quarter, Dynatrace is expected to post earnings of $0.18 per share, indicating a change of +12.5% from the year-ago quarter. The Zacks Consensus Estimate remained unchanged over the last 30 days.

Dynatrace has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of D.


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