DXC Technology Company (DXC Quick QuoteDXC - Free Report) reported better-than-expected results for the third quarter of fiscal 2024. The IT services and consulting company posted third-quarter non-GAAP earnings of 87 cents per share, which beat the Zacks Consensus Estimate of 77 cents.

However, the bottom line decreased 8.5% from the prior-year quarter’s earnings of 95 cents per share. The year-over-year decline was primarily due to lower revenues and increased interest expenses, partially offset by a lower share count.

DXC reported revenues of $3.40 billion, which surpassed the consensus mark of $3.36 billion. However, the top line declined 4.7% year over year, mainly due to a decrease in resale revenues. Additionally, we believe that the top line could also have been negatively impacted by a slowdown in client expenditures in the current uncertain macroeconomic environment.

Quarterly Details

DXC’s bookings in the fiscal third quarter were $3.4 billion, reflecting a book-to-bill ratio of 0.99. The trailing 12-month book-to-bill ratio for the company was 0.93 at the third-quarter fiscal 2024-end. Our estimate for bookings and the book-to-bill ratio was pegged at $2.8 billion and 0.84, respectively.

Segment-wise, revenues from Global Business Services (“GBS”) declined 2.4% on a year-over-year basis to $1.7 billion. Our estimate for the GBS segment’s third-quarter revenues was pegged at $1.67 billion.

However, on an organic basis, the division’s revenues improved 0.3% year over year. The upside was primarily aided by the strong performance of Analytics & Engineering and Insurance Software & BPS offerings, where revenues increased 2.2% and 2.1%, respectively, on an organic basis. However, the GBS segment’s Applications offerings registered a year-over-year organic revenue decline of 2%.

Global Infrastructure Services (“GIS”) revenues were $1.7 billion in the fiscal third quarter, down 6.8% year over year. Our estimate for the GIS segment’s third-quarter revenues was pegged at $1.68 billion.

On an organic basis, the division’s revenues decreased 8.9% year over year. Under the GIS division, revenues from Cloud Infrastructure & ITO, Modern Workplace and Security offerings declined 10.9%, 4.2% and 5.1%, respectively, on an organic basis.

The company’s adjusted gross margin improved 70 basis points (bps) year over year to 22.4%, mainly driven by a reduction in labor and non-labor costs. DXC’s adjusted operating income declined to $258 million in the second quarter from $309 million in the year-ago quarter. The adjusted operating margin contracted to 110 bps to 7.6%, mainly due to lower non-cash pension income, a reduction in asset sales and increased executive severance costs.

Balance Sheet and Cash Flow

DXC exited the fiscal third quarter with $1.69 billion in cash and cash equivalents compared with $1.41 billion in the previous quarter. The long-term debt balance (net of current maturities) was $3.88 billion as of Dec 31, 2023, up from $3.79 billion as of Sep 30.

In the third quarter, DXC generated operating cash flow of $706 million and free cash flow of $585 million. During the third quarter, it bought back shares worth $252 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 three quarters of fiscal 2024, DXC generated operating cash flow and free cash flow of $1.08 billion and $601 million, respectively. It returned $755 million to shareholders through share repurchases during the period.

Lowered FY24 Revenue Guidance

DXC lowered its guidance for the full fiscal 2024. For fiscal 2024, DXC now estimates revenues in the band of $13.63-$13.67 billion, down from its previous forecast in the range of $13.58-$13.73 billion.

The company now projects the adjusted EBIT margin for the fiscal in the range of 7.1%-7.2% instead of the earlier projection of 7%-7.5%. It now projects adjusted EPS between $3.00 and $3.05, down from the previous guidance range of $3.15-$3.40.

DXC also initiated guidance for the fourth quarter. For the quarter, the company anticipates revenues between $3.35 billion and $3.39 billion. The adjusted EBIT margin is expected in the range of 7%-7.5%. DXC projects adjusted earnings between 80 cents and 85 cents per share for the fourth quarter.

Zacks Rank & Stocks to Consider

Currently, DXC carries a Zacks Rank #3 (Hold). Shares of DXC have plunged 26.9% over the past year.

Some better-ranked stocks from the broader technology sector are Zoom Video Communications Inc. (ZM Quick QuoteZM - Free Report) , Amazon.com (AMZN Quick QuoteAMZN - Free Report) and NVIDIA Corporation (NVDA Quick QuoteNVDA - Free Report) . Zoom currently sports a Zacks Rank #1 (Strong Buy), while Amazon and NVIDIA each carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Zoom’s fiscal 2024 earnings has been revised upward by 3 cents to $4.94 per share in the past 60 days, suggesting year-over-year growth of 13%. The long-term estimated earnings growth rate for the stock stands at 33.5%. Shares of ZM have declined 21.8% over the past year.

The Zacks Consensus Estimate for Amazon’s 2024 earnings has been revised upward by a penny to $3.67 per share in the past seven days, which calls for an increase of 35.5% on a year-over-year basis. The long-term expected earnings growth rate for the stock is pegged at 28.5%. AMZN stock has returned 41% over the past year.

The consensus mark for NVIDIA’s fiscal 2024 earnings has been revised upward by a penny to $12.30 per share over the past 30 days, indicating a whopping 268.3% increase from fiscal 2023. It has a long-term earnings growth expectation of 13.5%. In the trailing 12 months, NVDA stock has surged 190.3%.