As sequestration begins, contractors report lowered profits

May 5, 2013

Government services contractors said last week that general delays and hesitancy in government spending are taking a toll on their profits and sales, leading at least one to consider more job cuts.

At Fairfax-based ManTech International, for instance, first-quarter profit dropped about 21 percent to $20.2 million. Revenue sank to $646 million, down about 5 percent from the same three-month period a year earlier.

“We have not been hurt by sequestration to my knowledge at this point in time,” said George J. Pedersen, ManTech’s chairman and chief executive, in a call with analysts. Still, company officials said federal agencies are “husbanding resources.”

“We had relatively little direct impact from sequestration in the quarter because our customers have been holding back funds for some time now, which has limited both growth on existing programs and awards on new programs,” said Kevin M. Phillips, ManTech’s chief financial officer, in the same call.

Arlington-based CACI International had its own tough quarter. The contractor reported last week that its profit in the three-month period ended March 31 dropped about 6 percent to $38.4 million. Revenue was also down, and the services contractor reduced its guidance.

The company said it anticipates earning $151 million to $157 million in profit for fiscal 2013, down from the $157 million to $163 million it expected earlier this year.

“We’re not feeling full-on effects of sequestration, but the run rate of the business has come down a little because of conservative spending habits on the part of our customers, said Kenneth Asbury, CACI’s president and chief executive, in an interview last week.

At the same time, the services contractor has been cutting employees. Company executives said the contractor paid $2 million in severance in its most recent quarter and plans to pay another $3 million to $5 million in severance next quarter.

A CACI spokeswoman said this quarter’s severance was related to the departure of senior personnel, while the planned costs are a “reserve” for future reductions.

Hanover-based cybersecurity company KEYW reported a first-quarter loss of nearly $2.3 million, down from $168,000 in profit in the same three-month period a year earlier.

Still, revenue grew nearly 40 percent, hitting $77.9 million. (The company is spending more on its staff and facilities, said John E. Krobath, KEYW’s chief financial officer.)

Leonard E. Moodispaw, the company’s chairman, president and chief executive, said the uncertainty ahead is resulting in slowed spending by federal customers.

“Any company that’s doing business with the federal government [that] asserts they won’t see any impact from the foolishness in Washington is kidding themselves,” Moodispaw told analysts in a call last week.

Because of the continued uncertainty, George A. Price Jr., senior equity research analyst for information technology services at BB&T Capital Markets, said he’s skeptical that companies can be confident their revenue forecasts will hold up.

“I’m not sure that what is being communicated is actually the way things will play out,” he said. “I think it gets worse before it gets better and ... numbers are going to continue to come down.”

Still, there were bright spots. Fairfax-based ICF International saw a roughly 13 percent uptick in its profit, reaching $10.1 million for the quarter, and Reston-based NCI’s quarterly profit rose about 25 percent to nearly $2 million, up from about $1.6 million in the same period a year earlier.

ICF attributed much of its success to growth in its commercial business. “Our diversified portfolio is serving us well,” said Sudhakar Kesavan, ICF’s chairman and chief executive, in a call with analysts last week.

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