Federal Contracts Help CSC Post Solid Net Income Gain

Computer Sciences Corp., which manages Defense Department computers and trains Iraqi police, said Monday that new federal contracts drove fiscal fourth-quarter sales and profit sharply higher.

At the same time, the El Segundo company’s traditional consulting and computer integration business continued to be squeezed by fierce competition.

CSC narrowly beat analysts’ expectations with net income of $190.6 million, or $1.01 a share, on $4 billion in sales in the period, which ended April 2. The company earned $162.7 million, or 93 cents a share, on revenue of $3.1 billion in the same quarter last year.

Analysts polled by Thomson First Call had expected CSC to earn $190.2 million, or $1 a share, on sales of $3.75 billion.

“The results were pretty good,� said Louis R. Miscioscia, an analyst with Lehman Bros., which doesn’t own CSC shares or do business with the company.

Analysts expected CSC to have $220 million in free cash flow for the year, and the company came in at $355 million. That “was a pleasant surprise,� Miscioscia said.

CSC shares fell 46 cents to $39.03 on the New York Stock Exchange. They rose to $41.11 in after-hours trading after the release of the earnings report.

Revenue from federal contracts jumped 65% during the quarter, aided by CSC’s DynCorp subsidiary. CSC acquired DynCorp, a Reston, Va.-based technology and security consultant, in March 2003 for $950 million.

“Most of their growth is driven now by DynCorp,� Miscioscia said. Indeed, company executives said DynCorp was responsible for two-thirds of CSC’s revenue growth in the quarter.

DynCorp provides bodyguards for federal officials working overseas and is in charge of training a new Iraqi police force. In March, it won a $406-million, 10-year contract to repair and maintain helicopters for the Army. That month it also won a $228-million, 10-year pact to maintain aircraft for NASA.

“The U.S. government contributed significantly in our year-over-year performance,� CSC’s Chief Executive Van Honeycutt told analysts.

Honeycutt said CSC has $31 billion in federal government contracts lined up over the next 23 months. CSC does not report DynCorp financial results separately, but analysts estimate the unit’s annual revenue at $700 million.

Sales in the company’s business consulting and computer integration unit, which accounts for about 17% of revenue, were flat. Executives blamed intense competition and lingering reluctance among companies to spend.

For the current quarter, CSC forecast sales of $3.7 billion to $3.8 billion, up from $3.6 billion last year, with per-share earnings of between 55 cents and 59 cents, up from 49 cents last year.

For the fiscal year, CSC earned $519.4 million, or $2.75 a share, on revenue of $14.8 billion. Last year, it earned $440.2 million, or $2.54 a share, on sales of $11.3 billion.