CSC lowers 4Q expectations

Computer Sciences Corp. (NYSE: CSC) missed third-quarter earnings estimates and suggested it could fall short of fourth-quarter expectations.

During a Monday conference call with analysts, the technology services provider predicted fiscal fourth-quarter net income of 92 cents to 95 cents per share, which suggests the company could earn less than Wall Street anticipated.

Analyst consensus was predicting a profit of 95 cents per share for Computer Sciences' quarter ending in March.

Shares of Computer Sciences traded at $57.96 in afterhours activity on the Island ECN, following the analyst call. Computer Sciences fell $2.86 to $59.40 in Monday's regular trading ahead of the report.

The company reported fiscal third-quarter net income of $122.9 million, or 72 cents per share, excluding special charges. Thirteen analysts surveyed by earnings tracking firm First Call produced a consensus profit forecast of 74 cents per share, for Computer Sciences' quarter ended Dec. 29.

Third-quarter revenue increased 12.9 percent year-over-year to $2.66 billion. First Call consensus predicted revenue of $2.67 billion.

The company's earnings were hurt by currency effects, severance costs related to job cuts in the company's global consulting practices unit, and lower-than-expected sales of software for the healthcare market, said Van Honeycutt, CEO, chairman and president.

"We are not immune to the conditions that have made this a difficult environment," Honeycutt told analysts. "But we are pleased with our results."

Not everyone was impressed. ING Barings analyst Brian Maimone saw no reason to change his "hold" rating on the stock.

"We thought the performance was lackluster," Maimone said.

If not for revenue from the recently acquired Mynd unit, Computer Sciences would have missed analyst estimates by 4 to 5 cents per share, Maimone said. Although the company provided fourth-quarter targets, including revenue growth of 12 to 14 percent year-over-year, Computer Sciences did not give a forecast for fiscal 2002.

"It's a cloudy picture, really," he said. "To not give a 2002 outlook doesn't make you all that confident."

Federal government business led CSC's third-quarter growth. That segment generated third quarter revenue of $647.5 million, up 19.1 percent year-over-year. Civil agencies revenue increased 22.2 percent to $248.1 million, on the back of contracts with the Internal Revenue Service, General Services Administration and other departments. Revenue from the Department of Defense rose 17.2 percent to $399.4 million.

Commercial revenue gained 11.1 percent year-over-year to $2 billion, including $999.6 million from North America and $314.2 million from international areas except for Europe. Third-quarter revenue from Europe rose 7.5 percent to $654.3 million; European revenue rose 24.2 percent if currency effects are discounted.

Growth in commercial business needs to improve, Maimone said, adding that profit margins on government contracts are 0.2 to 0.3 percent lower than commercial business. "You need big commercial contracts to drive the business and, more important, the stock higher," he said. "I think the inflection point in the company's growth rate upward is probably a quarter or two away."

Computer Sciences won $1.8 billion in contracts during the third quarter.

Including restructuring charges of $84.2 million, Computer Sciences in the third quarter earned $65.6 million, or 38 cents per share. Cost-cutting moves undertaken after the Mynd acquisition was announced in June will save $150 million a year, the company said.>