“We’ve continued the effort to manage cost by aligning staffing levels much more closely against client demand, reducing infrastructure spending and more carefully managing compensation,” said Samuel R. Strickland, Booz Allen’s chief financial officer, in a call with investors last week. “These changes have resulted in our evolution into a much more tightly managed business.”
Profit rose about 8 percent to $54.8 million (37 cents a share) in the three-month period ended March 31, up from $50.6 million (36 cents) in the same period a year earlier. Revenue rose slightly, reaching $1.55 billion.
Booz Allen’s focus on trimming jobs and costs comes as many other contractors are cutting back to adapt to reduced government spending. Services businesses — or those that focus in areas such as consulting — have particularly had to prune employees, who typically make up the bulk of their expenses.
Strickland acknowledged last week that Booz Allen’s reductions — which have included eliminating management jobs and reducing partner compensation — have been tough for the business.
“It’s been painful having to make adjustments, even in the partner corps as we did last January,” he said.
And that contraction isn’t likely to come to an end soon. Strickland said last week that he expects the contractor’s head count to continue to decrease over the course of the year.
Still, he argued that Booz Allen is hiring in areas where it sees opportunity.
“There are growth areas within the firm that we’ve talked about ... like cyber and the cloud and some of our technology areas,” Strickland said. “We are adding staff in our investment areas now, we’re just also cutting back staff in those areas where we’re not seeing growth opportunities.”
So far, the company said the effects of sequestration have not been particularly damaging. Strickland said in the call with investors last week that the automatic federal spending cuts have trimmed about 100 Booz Allen jobs.
As part of its effort to cope with declining government spending, Booz Allen has established a strategic innovation group, meant to apply the company’s technologies and services to new areas and seek out research and development work. Karen Dahut, who previously ran Booz Allen’s analytics unit, is heading the group.
Additionally, like many others, the contractor is looking to commercial and international work, which represents less than 2 percent of its revenue.
Company executives said last week they now expect a small decline in revenue in fiscal 2014, which began in April.
Still, investors expressed skepticism about Booz Allen’s ability to keep profits and revenue growing.
“They’re not net hiring billable people,” said William Loomis, managing director at financial services firm Stifel Nicolaus. “Our concern is that ... the award delays do continue, that the impact of sequestration ... does start to get felt in the back half of the year.”
George A. Price Jr., senior equity research analyst for information technology services at BB&T Capital Markets, said Booz Allen has successfully managed its costs but is not immune to the tough trends facing the industry.
“At the end of the day, if the overwhelming majority of your revenue is geared to government budgets and those are under pressure ... you’re going to feel that impact,” he said.