Science Applications International Corp. [SAIC] on Thursday posted strong results in its second quarter with organic growth above 8 percent and net income more than tripling.
Net income was $247 million, $4.56 earnings per share (EPS), versus $74 million ($1.30 EPS) a year ago. Adjusting for a gain on divestitures and other non-operating expenses, adjusted earnings of $2.05 EPS topped consensus estimates by 43 cents per share. Adjusted operating margin increased 70 basis points to 9.8 percent.
Sales in the quarter fell 3 percent to just under $1.8 billion from just over $1.8 billion a year ago due to the divestiture of SAIC’s supply chain and logistics business, and the deconsolidation of a joint venture. Excluding these impacts, organic sales increased 8.3 percent.
The increase in organic revenue is due to the rampup in sales on new and existing programs, improved labor productivity, and the timing of material sales. Nazzic Keene, SAIC’s outgoing CEO, said on the company’s earnings call that in the past year the company’s hiring of employees has improved as has retention, which has led to lower turnover.
Demand for employees has led to “minor escalation” in labor costs, she said. Prabu Natarajan, SAIC’s chief financial officer, said labor-related inflation has dented the company’s operating margin between 10 and 30 basis points the past two years but that the improved hiring environment will help margin rates ahead.
SAIC increased its sales guidance for its fiscal year 2024 to between $7.2 billion and nearly $7.3 billion versus the prior outlook of between $7.1 billion and just over $7.2 billion. Adjusted earnings are now expected to be between $7.20 and $7.40 EPS versus prior expectations of between $7 and $7.20 EPS reflecting improved performance and a lower-than-expected tax rate.
Free cash flow is still forecast between $460 million and $480 million. In the second quarter, free cash flow was $144 million.
SAIC booked $700 million in orders during the quarter and backlog stood at $22.5 billion, down 5 percent from $23.8 billion at the end of the fiscal year in February.