Why DXC Technology Is Down Nearly 20% Today

What happened

Shares of information technology outfit DXC Technology Company (DXC -20.18%) are down 19.9% as of 1:35 p.m. ET on Thursday. The decline follows a disappointing fiscal first-quarter report and similarly disappointing guidance for the quarter now underway.

So what

Last quarter was even worse than expected for the company. Analysts were already calling for revenue to slide from the year-ago figure of $4.14 billion, but the actual figure of $3.71 billion still fell $10 million short of estimates. Per-share non-GAAP (adjusted) earnings fell from $0.84 to $0.75, versus a consensus of $0.82. Adjusted pre-tax, pre-interest income fell from $332 million to $259 million. The quarter’s earnings results also fell short of the company’s previous profit guidance between $0.80 and $0.85 per share, while the top line barely reached the lower end of the suggested range of $3.7 billion to $3.75 billion.

Guidance for the current quarter was similarly deflating. The company anticipates more than an 11% year-over-year revenue decline, to just a little less than $3.6 billion, with earnings expected to fall from the year-ago figure of $0.90 per share to somewhere between $0.70 and $0.75 per share for the three-month stretch ending in September. Analysts had been modeling revenue of just under $3.7 billion and profits of $0.93 per share.

Neither the official quarterly report nor the conference call provided a great deal of detail regarding the lackluster quarterly numbers and outlook. DXC Technology’s management did underscore during Wednesday evening’s call, however, that the organization is in the midst of a transformation into a more focused, cost-effective outfit. Not only is this disruptive, but the disruption is taking shape in an increasingly wobbly economy.

Now what

Despite the disappointing quarterly results and equally lackluster outlook for the quarter now underway (and for the full year as well), DXC Technology Company isn’t facing an existential threat. Its self-imposed overhaul is simply complicating operations and crimping current results, while potential clients may be wary of making major financial commitments against a backdrop of economic uncertainty. Given enough time, it will be fine, making today’s tumble from the stock an entry opportunity.

That’s arguably not the right move for most investors, though.

Missing from the picture is clarity as to what transformations still need to take shape and when they might be complete. Sales and earnings growth should be rekindled next year, but not firmly enough to justify the risk of stepping into this in-transition company just yet.

James Brumley has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.





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