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Computer Sciences edges past targets, cuts outlook

Computer Sciences topped diminished expectations by a penny in the fourth quarter and told analysts to lower their first-quarter forecasts.

After market close Monday, the technology services provider reported fiscal fourth-quarter earnings of $61.3 million, or 36 cents per share, excluding special charges. First Call's survey of 14 analysts predicted a profit of 35 cents per share for Computer Sciences' quarter ended March 30.

However, First Call originally predicted a fourth-quarter profit of 92 cents per share. That estimate was severely lowered after Computer Sciences' fourth-quarter profit warning in mid-March.

Computer Sciences sees fiscal first-quarter earnings per share in the high 20-cent range. First Call consensus was calling for a profit of 39 cents per share.

"Some of the conditions that impacted our fourth quarter will linger to some degree into fiscal 2002," said Van B. Honeycutt, president, CEO and chairman. "As a result of finalizing our budget for the current fiscal year, we anticipate our results to improve, quarter by quarter, as fiscal 2002 progresses."

The company predicts fiscal 2002 earnings of $2.25 to $2.35 per share, compared to the consensus analyst prediction of $2.31 per share.

Fourth-quarter revenue increased 12.5 percent year-over-year to $2.9 billion. Analyst consensus predicted fourth-quarter revenue of $2.84 billion.

Commercial revenue increased 13.8 percent year-over-year to $2.2 billion. U.S. federal government revenue increased 8.6 percent to $707.2 billion.

"While our revenue growth for the fourth quarter was quite solid, our profits were not," Honeycutt said.

Company executives blamed the earnings disappointment on several factors:

• Lower demand for commercial consulting and systems integration services, especially in North America, caused about 40 percent of the earnings decline from the year-ago period, Chief Financial Officer Leon Level said during a conference call with analysts. The company earned 84 cents per share in the fourth quarter of the previous fiscal year.

• Disappointing sales of healthcare software, which boost Computer Sciences' profit margin. Level blamed about 10 percent of the decline on this area.

• Lower margins on two contracts and cost overruns on some fixed-price projects were responsible for about 20 percent of the shortfall, Level said.

• Higher-interest expenses and lower-than-expected revenue from Internet-related clients, whose problems forced Computer Sciences to write-off some receivables, were responsible for the rest of the decline, Level said.