For Immediate Release
Chicago, IL – August 12, 2010 – Zacks.com Analyst Blog features: Computer Sciences Corporation. (CSE), Accenture (ACN), Hewlett-Packard (HPQ), JA Solar Holdings (JASO) and The Scotts Miracle-Gro Co. (SMG ).
Here are highlights from Wednesday’s Analyst Blog:
CSC Mixed on Top, Bottom Lines
Computer Sciences Corporation. (CSE) reported first quarter 2010 EPS of $0.91, exceeding the Zacks Consensus Estimate of $0.90, while revenue of $3.94 billion was below the Zacks Consensus of $4.07 billion.
Revenue
The company’s first quarter 2011 revenue was up 1.1% compared to the year-ago quarter, driven by strength across all segments except Business Solutions & Services.
North American Public Sector (NPS) revenue was $1.55 billion, up 2.2% compared to the year-ago quarter. Managed Services Sector (MSS) revenue was $1.60 billion, up 2.2% from the year-ago quarter. Business Solutions and Services (BSS) revenue was $0.82 billion, down 2.0% compared to the year-ago quarter.
New Business
The company won $3.2 billion worth of new business awards in the first quarter. Of the three lines of business, NPS accounted for $1.2 billion of new business wins, BSS $0.8 billion and MSS $1.2 billion.
Operating Results
CSC recorded an operating margin of 7.13%, up 32 basis points from 6.81% reported in the year-ago quarter. The margin was negatively impacted by the increase in the cost of services, offset to a considerable extent by the increase in revenue.
Computer Sciences reported net income attributable to the company’s shareholders of $143.0 million, which was down 9.2% from $131.0 million reported in the year-ago quarter. The first quarter EPS was $0.91, up from $0.85 reported in the year-ago quarter.
Balance Sheet
CSC used $60.0 million of operating cash flow, which improved by $237.0 million from the previous year, while the free cash flow was a negative of $318.0 million. The company exited the quarter with $2.43 billion in cash and cash equivalents. CSC has a total debt balance of $3.73 billion and its debt-to-capitalization ratio declined by 30 basis points in the last quarter to 36.8%.
Guidance
The company provided its guidance for fiscal year 2011. Accordingly, Computer Sciences expects new business awards in excess of $18 billion, revenue in the range of $16.8 to $17.2 billion, operating margin of between 9% and 9.25% and EPS in the range of $5.30 - $5.40. Free cash flow is expected to be equal to or greater than 90% of net income.
Our Recommendation
The company has a steady flow of new business, especially in the government vertical and is financially sound. On the other hand, we are a bit concerned about the intense competition in the IT and cloud computing space from both big and small players such as Accenture (ACN) and Hewlett-Packard (HPQ).
We currently have a long-term Neutral recommendation on the stock, and the Zacks #3 Rank allotted to the shares indicates that we do not expect significant variation in prices over the next 1-3 months.
JA Solar Posts Higher Revenues
JA Solar Holdings (JASO) announced adjusted earnings per American Depositary Share (EPADS) of 18 cents in its second quarter, which fell short of the Zacks Consensus Estimate of 23 cents. However, results comfortably beat the year-ago adjusted loss per ADS of 18 cents.
Quarterly Performance
JA Solar’s revenues in the reported quarter were $351.2 million, compared to $281 million in the first quarter of 2010 and $88.6 million in the year-ago quarter. Revenues in the reported quarter also comfortably beat the Zacks Consensus Estimate of $300 million.
In the reported quarter, JA Solar’s sales to international customers expanded substantially to 46% of total revenues, an increase of 10% from the first quarter of 2010. The company’s has a strong presence round the globe in key markets, including Germany, Italy, U.S., Spain, India, Korea, China and Japan.
Total shipments in the second quarter of 2010 were 311 MW, compared with first quarter shipments of 272 MW, representing a sequential growth of 14%, primarily due to improvements in line throughput and yield. Gross margins increased to 23.1% in the reported quarter, from 22.9% in the first quarter of 2010.
Financial Condition
JA Solar at the end of the reported quarter had cash and cash equivalents of $324.6 million and total working capital of $535.9 million. The company's total long-term bank borrowings were $174 million. The aggregate face value of the convertible bonds, due 2013, outstanding was RMB 1.5 billion ($228.2 million) at June 30, 2010.
Outlook
JA Solar raised its shipments guidance range for fiscal 2010 to over 1.35 GW, compared with the prior guidance of 1 GW. Shipments in the third quarter of 2010 are expected to be approximately 375MW.
Scotts Miracle-Gro Beats, Reaffirms
The Scotts Miracle-Gro Co. (SMG ) recorded a 19.0% growth in fiscal 2010 third-quarter GAAP net income to $175.9 million from $147.8 million in the year-ago period mainly due to better pricing and cost containment initiatives. Earnings from continuing operations came in at $2.61 per share, easily beating both the Zacks Consensus Estimate of $2.46 and the year-ago result of $2.34 per share.
Bolstered by the better-than-expected performance, Scotts Miracle-Gro doubled its quarterly dividend to 25 cents per share, which will be payable Sep 10, 2010 to shareholders of record as on Aug 27, 2010. Moreover, the company also authorized a $500 million program to buy back shares in the next four years.
During the quarter, Scotts Miracle-Gro posted a modest 0.6% growth in net sales to $1.24 billion from $1.23 billion in the year-ago quarter as the company witnessed improved sales at major U.S. retailers. Scotts Miracle-Gro’s flagship Global Consumer division logged a 0.3% year-over-year growth to $1.09 billion. Global Professional segment sales grew 3.5% to $71.9 million, while Scotts LawnService posted a growth of 3.0% to $81.3 million.
Scotts Miracle-Gro’s quarterly gross profit increased 6.1% to $504.8 million, while gross margin expanded 210 basis points (bps) to 40.7% primarily due to improved pricing. Selling, general and administrative expenses declined 3.9% year-over-year to $214.4 million mainly due to management initiatives to control costs. Accordingly, operating income jumped 16.2% year-over-year to $290.5 million, while operating margin expanded 310 bps to 23.4%.
Scotts Miracle-Gro ended the quarter with cash and cash equivalents of $78.7 million and long-term-debt of $690.2 million, compared to a cash balance of $149.2 million and long-term debt of $1,120.6 million in the year-ago period.
Looking ahead, Scotts Miracle-Gro reaffirmed its adjusted EPS guidance of $3.25 to $3.35 per share for the fiscal year ending September 2010, in line with the Zacks Consensus Estimate of $3.30 per share, which dipped a penny over the past 2 months. For the next fiscal, the Zacks Consensus Estimate is currently pegged at $3.64 per share, which moved up a penny over the past 2 months.
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