DXC Technology Company (DXC Quick QuoteDXC - Free Report) reported better-than-expected bottom-line results in the second quarter of fiscal 2024. The IT services and consulting company posted second-quarter non-GAAP earnings of 70 cents per share, which beat the Zacks Consensus Estimate of 68 cents.

However, the bottom line decreased 6.7% from the prior-year quarter’s earnings of 75 cents per share. The year-over-year decline was primarily due to lower revenues and increased interest expenses, partially offset by the benefits of cost-saving initiatives and a lower share count.

DXC reported revenues of $3.44 billion, in line with the consensus mark, but declined 3.6% year over year, mainly due to a reduced level of low-margin resale revenues. We believe that the top line was negatively impacted by a slowdown in client expenditures in the current uncertain macroeconomic environment.

Quarterly Details

DXC’s bookings in the fiscal second quarter were $2.8 billion, reflecting a book-to-bill ratio of 0.81. The trailing 12-month book-to-bill ratio for the company was 1.02 at the second-quarter fiscal 2024-end. Our estimate for bookings and the book-to-bill ratio was pegged at $3 billion and 0.87, respectively.

Segment-wise, revenues from Global Business Services (“GBS”) inched down 0.2% on a year-over-year basis to $1.71 billion. Our estimate for the GBS segment’s second-quarter revenues was pegged at $1.72 billion.

However, on an organic basis, the division’s revenues improved 2.4% year over year. The upside was primarily aided by the strong performance of Analytics & Engineering and Insurance Software & BPS offerings, where revenues increased 5.3% and 5.2%, respectively, on an organic basis. However, the GBS segment’s Applications offerings registered a year-over-year organic revenue decline of 0.8%.

Global Infrastructure Services (“GIS”) revenues were $1.73 billion in the fiscal second quarter, down 6.8% year over year. Our estimate for the GIS segment’s second-quarter revenues was pegged at $1.72 billion.

On an organic basis, the division’s revenues decreased 9.1% year over year. Under the GIS division, revenues from Cloud Infrastructure & ITO, Modern Workplace and Security offerings declined 9.8%, 9% and 1.8%, respectively, on an organic basis.

The company’s adjusted gross margin improved 120 basis points (bps) year over year to 23.4%, mainly driven by its cost reduction initiatives. DXC’s adjusted operating income declined to $251 million in the second quarter from $269 million in the year-ago quarter. The adjusted operating margin contracted to 7.3% from 7.5%.

Balance Sheet and Cash Flow

DXC exited the fiscal second quarter with $1.41 billion in cash and cash equivalents compared with $1.58 billion in the previous quarter. The long-term debt balance (net of current maturities) was $3.79 billion as of Sep 30, 2023, down from $3.9 billion as of Jun 30.

In the second quarter, DXC generated operating cash flow of $248 million and free cash flow of $91 million. During the quarter, it bought back shares worth $214 million. The company stated that it is on track to complete the $1 billion share repurchase program in fiscal 2024. DXC had initiated the $1 billion share buyback program in April 2023.

During the first half of fiscal 2024, DXC generated operating cash flow and free cash flow of $375 million and $16 million, respectively. It returned $494 million to shareholders through share repurchases during the period.

Lowered FY24 Revenue Guidance

DXC lowered its revenue guidance for the full fiscal 2024. For fiscal 2024, DXC now estimates revenues in the band of $13.58-$13.73 billion, down from its previous forecast in the range of $13.88-$14.03 billion.

However, the company reaffirmed fiscal 2024 guidance for other metrics. It still projects the adjusted EBIT margin for the fiscal in the range of 7%-7.5% and adjusted EPS between $3.15 and $3.40.

DXC also initiated guidance for the third quarter. For the quarter, the company anticipates revenues between $3.32 billion and $3.37 billion. The adjusted EBIT margin is expected in the range of 7%-7.5%. DXC projects adjusted earnings between 75 cents and 80 cents per share for the third quarter.

Zacks Rank & Stocks to Consider

Currently, DXC carries a Zacks Rank #4 (Sell). Shares of DXC have plunged 23.4% year to date (YTD).

Some better-ranked stocks from the broader technology sector are Palo Alto Networks (PANW Quick QuotePANW - Free Report) , NVIDIA Corporation (NVDA Quick QuoteNVDA - Free Report) and Splunk . Palo Alto and NVIDIA each sport a Zacks Rank #1 (Strong Buy), while Splunk carries a Zacks Rank #2 (Buy) at present. You can see the complete list of today's Zacks #1 Rank stocks here.

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NVIDIA’s earnings beat the Zacks Consensus Estimate thrice in the preceding four quarters while missing on one occasion, the average surprise being 9.8%. Shares of NVDA have surged 189.6% YTD.

The Zacks Consensus Estimate for Splunk's third-quarter fiscal 2024 earnings has been revised upward by 4 cents to 46 cents per share in the past 60 days. For fiscal 2024, earnings estimates have moved upward by 2 cents to $3.78 per share in the past 60 days.

Splunk’s earnings beat the Zacks Consensus Estimate in the preceding four quarters, the average surprise being 154.9%. Shares of SPLK have risen 70.6% YTD.