Science Applications International Corp. [SAIC] on Tuesday posted slightly higher sales in its opening quarter but net income edged down due to costs associated with its recent acquisition of Scitor and because of a charge on a small Army contract.
Net income slipped 3 percent to $33 million, 69 cents earnings per share (EPS), from $34 million (69 cents EPS) a year ago, 6 cents EPS below analysts’ expectations. Per share earnings held steady due to a lower share count from ongoing stock repurchases.
The acquisition of Scitor and related integration costs trimmed $3 million (4 cents EPS) from operating income and a $2 million charge related to a fixed-price development contract also chipped away at the bottom line.
John Hartley, SAIC’s chief financial officer, said on the earnings call that the Army contract is only worth about $3 million but was giving the company trouble but doesn’t expect to “continue to leak on us.”
Sales increased 3 percent to just over $1 billion from $977 million. Excluding revenue from its former parent-SAIC and Leidos [LDOS] separated more than a year ago–sales increased 4 percent to $998 million from $962 million. The gain was all organic.
SAIC attributed the growth to higher volume on supply chain contracts and increased Defense Department material and subcontract revenue.
Free cash flow in the quarter was a strong $28 million and the company said that expected cash flow contributions from Scitor led to a decision to increase the quarterly dividend. SAIC announced a nearly 11 percent increase to its quarterly dividend to 31 cents per share, up from 28 cents, payable on July 30.
Orders totaled $1 billion for a solid book-to-bill ratio of one, which is better than SAIC’s typical first quarter, while total backlog remained level at $6.2 billion from the end of the fourth quarter. Funded backlog increased $100 million to $1.8 billion.
Tony Moraco, SAIC’s CEO, said that the company’s customers have more stability this year than last given the fact that there is an appropriated budget in place for the government’s current fiscal year but cautioned that “Our customers remain guarded with their resources.” Still, he said, “We’ve noticed a modes increase in order activity as demonstrated by the increase amount of bookings in this quarter.
Moraco also said that the company’s estimated value of its submitted bids awaiting awards is $13.3 billion, up $600 million since the end of the fourth quarter.
The first quarter results don’t include financial contributions from the Scitor deal, which closed during the second quarter.
Hartley said that SAIC continues to forecast organic growth in the low single digits annually, which will be reinforced by mid-single digit growth in the intelligence business due to the Scitor acquisition, which will make up 11 percent of annual revenue.