CSC To Complete Split Nov. 27, Will Name Public Sector Business CSRA

CSC will finalize its split into separate commercial and U.S. government companies by the end of the month, with the public sector firm adopting the moniker CSRA, the company said Wednesday.

The Falls Church, Va.-based company, No. 5 on the CRN Solution Provider 500, said a one-for-one distribution of CSRA shares to CSC stockholders will occur after the market closes Nov. 27, with CSRA expected to begin trading on the New York Stock Exchange on Nov. 30. SRA's shareholders -- led by Providence Equity Partners -- will own 15 percent of the combined company.

"We remain on track to separate the company," CEO Mike Lawrie said during the final pre-split earnings call Wednesday. In recent months, Lawrie said the company has named a new chief financial officer for CSRA, added a number of key leaders to both companies and identified more people to serve on CSRA's board of directors.

[Related: Wheeling And Dealing: CSC To Buy $480M Australian IT Giant As It Readies For Split]

CSC has been extremely active since announcing its split in May, rolling out three tuck-in acquisitions for its $8.1 billion commercial business as well as a merger between its $4.1 billion U.S. public sector business and $1.4 billion competitor SRA. The SRA merger is slated to close Nov. 30.

The company has also made improvements to its vendor agreements, likely resulting in higher margins, as a result of the split, Lawrie said.

CSC's sales fell 7.2 percent in the quarter ended Oct. 2, to $2.71 billion, after factoring for changes in foreign currency exchange rates. This fell short of Seeking Alpha projections of $2.79 billion. Non-GAAP earnings per share climbed 7 percent, to $1.26, or $183 million overall, smashing Seeking Alpha estimates of $1.14 per share.

The solution provider recorded declining sales in all three areas of its business, with North American public sector revenue sinking 7.1 percent on a constant-currency basis, to $967 million, because of delays in resolving a major contract dispute, program completions and reduced task orders, the company said.

Global business services sales fell by 3.7 percent on a constant-currency basis, to $891 million, because of declining application, consulting and staff augmentation revenue, according to the company. Lawrie said CSC has implemented a new approach to consulting in the United Kingdom focused on helping clients figure out how to transition from traditional infrastructure to next-generation cloud infrastructure.

That new technology-focused approach is paying dividends, as consulting revenue climbed 18 percent on a constant-currency basis in the U.K. while falling in the United States. Lawrie said CSC is in the process of implementing that new approach in the U.S.

Global infrastructure services fared the worst of any segment, with revenue tumbling 10.8 percent, to $854 million, on a constant-currency basis, due to price-downs, restructured contracts and other contract completions, according to the company.

A 31 percent jump in next-generation offering sales provided a nice boost to CSC's top line, Lawrie said, but failed to offset declines in the company's legacy businesses. Lawrie said he expects that, within the next year, growth from next-generation offerings will exceed the sales hit from contract challenges and restructuring in CSC's legacy business.

"This portfolio is beginning to remix, and as that happens, it will drive higher margins," Lawrie said.

Over the past quarter, the solution provider delivered 37 percent growth in big data sales; 37 percent sequential growth in Software-as-a-Service sales; 36 percent increase in standalone cyber revenue; 31 percent sequential growth in app modernization; and 20 percent growth in next-generation networking sales, thanks to a partnership with AT&T, Lawrie said.

CSC's stock remained unchanged at $68.10 in after-hours trading Wednesday. Earnings were announced after the market closed.

For the next quarter, CSC expects sales to come in relatively flat for both its commercial and public sector businesses. Non-GAAP earnings per share for CSC's 2016 fiscal year, which ends March 31, are expected to come in at between $4.75 and $5.05 per share, Lawrie said.

PUBLISHED NOV. 4, 2015