Defense work continues to boost CSC earnings

Computer Sciences Corp. points to the Pentagon as its catalyst for recent revenue growth in federal business.

CSC today reported federal government revenue of $1.24 billion for its second quarter of fiscal 2006, which ended Sept. 30. That total represents a 7.5 percent increase compared with revenue of $1.16 billion a year ago. The company’s Defense Department business grew 19.9 percent to $835.4 million vs. $696.5 million last year.

The company similarly credited defense work with revenue growth in its first fiscal quarter, which ended July 1.

The DOD boost came from increases on the Army’s Rapid Response program among other projects, according to Lee Level, CSC’s chief financial officer. CSC captured one of eight Rapid Response contracts in 2003. CSC values its award at $700 million.

The DOD expansion, however, was partially offset by reduced work on CSC’s Internal Revenue Service modernization effort and the completion of the Justice Department’s Trilogy and Asset Forfeiture programs, Level added.

As for future growth, Van Honeycutt, CSC’s chairman, president and chief executive officer, said the company’s federal business opportunity pipeline continues to be robust. Federal deals to be awarded during the next 17 months total about $30 billion, company officials said.

Overall, CSC reported September quarter revenue of $3.57 billion, a 5.3 percent increase compared with last year’s $3.39 billion. The company generated net income of $99.5 million and diluted earnings per share of 53 cents. That compares with net income of $103.5 million and earnings per share of 68 cents a year ago. The September quarter earnings reflect a charge related to a canceled commercial contract.

CSC executives declined to discuss speculation that Lockheed Martin is maneuvering to purchase its federal operation. The Wall Street Journal has reported that Lockheed Martin and three private equity groups are weighing a buyout.