Investors of DXC Technology Co. were left reeling today as the global information-technology consultant failed to meet earnings expectations for its fiscal first quarter. This disappointing performance has prompted the company to revise its full-year outlook, citing specific challenges within its cloud and outsourcing businesses.
During the post-earnings conference call with analysts, Chief Financial Officer Rob Del Bene expressed his concerns about the quarter’s results, attributing them to a slowdown in customer expenditures. Del Bene specifically mentioned the impact on the resale of IT equipment such as PCs, networking gear, servers, and project work.
As a consequence of the disappointing earnings report, DXC’s stock (DXC) experienced a sharp decline of 29.4% during midday trading. This drop not only outpaced the S&P 500’s decliners but also marked the lowest closing price since November 6, 2020. Additionally, this decline represents the company’s most significant one-day selloff since August 9, 2019, when it plummeted by 30.5%.
The fiscal first-quarter revenue for the period ending on June 30 fell by 7% to $3.45 billion, falling short of the FactSet consensus of $3.56 billion. The decline in revenue was primarily driven by a 3.1% decrease in global business services revenue, which amounted to $1.7 billion, and a 10.6% slump in global infrastructure services revenue, totaling $1.74 billion.
Among the various businesses within DXC, the cloud and IT outsourcing sectors faced the most significant challenges, while the modern workplace business experienced more moderate declines.
Del Bene reiterated that the slowdown in customer expenditures had adversely affected the quarter’s performance, mainly impacting the resale of IT equipment and project work.
Looking ahead to the full fiscal year, DXC has revised its revenue guidance range to $13.88 billion to $14.03 billion. This adjustment is a decrease from the previous range of $14.4 billion to $14.55 billion, which was provided in May.
DXC Technology lowers full-year outlook
DXC Technology, a leading IT services company, has lowered its full-year outlook, following similar outlook cuts from rivals Accenture and Infosys. The company attributes this revised forecast to broader macroeconomic weakness.
Declining resale and projects
According to DXC’s CEO, Mike Salvino, the decline in resale and projects aligns with industry trends, as the economic environment continues to impact spending. This downward trend in revenue negatively affected profitability, particularly in the first quarter of this fiscal year.
Disappointing financial results
DXC also reported a decrease in net income, dropping to $36 million, or 17 cents per share, compared to $102 million, or 43 cents per share, during the same period last year. Adjusted earnings per share came in at 63 cents, significantly below the FactSet consensus of 82 cents.
Lowered guidance for fiscal 2024
As a result of these challenges, DXC has lowered its guidance range for adjusted earnings per share for fiscal 2024. The new range is $3.15 to $3.40, down from the previous forecast of $3.80 to $4.05.
Analyst downgrade and stock performance
Following DXC’s revised outlook, BMO Capital analyst Keith Bachman downgraded the company’s stock to market perform. He also lowered his price target from $27 to $25, citing the difficult macroeconomic conditions and expressing doubts about a medium-term recovery. Furthermore, DXC’s stock has experienced a significant decline of 27.8% year-to-date, in contrast to Accenture’s 18.4% rally and Infosys’ 8.4% slip. The S&P 500, on the other hand, has advanced by 17.3%.
In summary, DXC Technology faces challenges due to a tough macroeconomic environment that has impacted its revenue and profitability. As the company adjusts its outlook for the year ahead, market analysts express doubts about a quick recovery.