SAIC [SAI] on Tuesday posted positive net income in the fourth quarter after a loss a year ago was impaired by a hefty charge related to a workforce management system for New York City.
Net income in the quarter was $182 million, 54 cents earnings per share (EPS), versus a loss of $161 million (49 cents EPS) a year ago, topping consensus estimates by two cents. Excluding the charge from the City Time contract, SAIC’s operating margins in the quarter were 5.3 percent versus 6.9 percent a year ago.
Operating margins were “abnormally low” in the quarter due to several factors, the most significant contributors being fees and employee severance costs associated with SAIC’s planned split into two separate companies later this year, and charges related to legal matters and to impairments associated with previous acquisitions, Mark Sopp, SAIC’s chief financial officer, said on Tuesday’s earnings call.
SAIC also wrote down programs in its Defense Solutions and Health, Energy and Civil Solutions segments that negatively affected margins as did costs associated with moving the corporate headquarters to the Washington, D.C., area from San Diego last year, Sopp said.
To maintain its competitiveness and profitability going forward, SAIC is undertaking a number of actions to reduce its operating costs by at least $350 million annually, including a 30 percent reduction in its facilities footprint that should contributed $70 million toward the goal, company executives said. Most of the cost reductions, $220 million, will be found by eliminating overhead such as indirect labor costs, said Stuart Shea, SAIC’s chief operating officer.
Sales in the quarter increased 12 percent to $2.7 billion from $2.5 billion a year ago. Results a year ago were also impacted by provisions related to the City Time charge, which reduced sales by $358 million in last year’s quarter. Excluding the City Time provisions, sales in the quarter would have declined $118 million.
SAIC introduced guidance for its fiscal year 2014, with sales expected to be between $10 billion and $10.7 billion versus $11.7 billion in FY ’13. Earnings from continuing operations are expected to be between $1.16 and $1.33 EPS versus $1.54 in FY ’13.
The projected results factor in the reduced government spending from the ongoing budget sequestration and the drawdown of military forces overseas, all of which are creating headwinds for this year, said John Jumper, SAIC’s chairman and CEO.
Despite the rough outlook, SAIC declared a special $1 per share dividend to its shareholders payable on June 28. The company also maintained its quarterly dividend, begun a year ago, at 12 cents per share.
Bookings in the quarter were light, just $2 billion, while total backlog at the end of the fiscal year stood remained level with a year ago at $17.9 billion. Funded backlog was $5.4 billion. Shea said the company’s pipeline of business opportunities remains strong, with $24 billion in submitted bids awaiting award.