Contractors see worsening results, prepare for a tougher 2014

November 3, 2013

Contractors that provide services to the government last week reported declining sales — and some warned that 2014 could be worse.

After a troubled 2012, Reston-based NCI was one of the rare contractors last week to report rosier profits.

In its most recent quarter, revenue was down — the company posted sales of $77.9 million, down almost 12 percent from the same period a year earlier. But, NCI said it made a profit of nearly $2 million in the third quarter, up from a loss of $55.2 million during the three-month period last year.

Still, Brian J. Clark, NCI’s president, had little good news to report.

“It’s no secret that the federal procurement environment is a train wreck, especially for IT services, and 2014 could be even more challenging,” he told analysts Tuesday. “A recent report by one of the analysts covering our space read like a doctor’s chart for a terminal patient.”

Those services contractors who are improving their profits are doing so not by boosting their sales but by managing their costs.

McLean-based contracting giant Booz Allen Hamilton reported revenue fell less than 1 percent to $1.38 billion, while profit surged 47 percent to hit $67.8 million — even though the company has trimmed its headcount.

“Higher consulting staff productivity, higher billable expenses and the revenue from acquisitions helped minimize the impact of head count declines,” said Samuel R. Strickland, Booz Allen’s chief financial officer, in a call with analysts.

Though it was not included in Booz Allen’s most recent quarter, the recent government shutdown cost the company about $30 million, according to Strickland. Booz Allen executives said they reassigned affected employees to handle administrative tasks.

(Booz & Co., which was spun off from Booz Allen Hamilton in 2008, said it has signed a deal to merge with PricewaterhouseCoopers).

Arlington-based CACI International and Fairfax-based ManTech International reported worsening results.

ManTech’s sales fell 12 percent to $567.4 million, while its profit declined more than 27 percent to $17.7 million. The company lowered its revenue and profit forecast for the year.

At CACI, both revenue and profit fell about 7 percent in the quarter, with revenue hitting $864.3 million and profit falling to just shy of $33 million.

But Ken Asbury, CACI’s president and chief executive, struck an upbeat note, arguing that the company is seeing government agencies moving forward with new awards, rather than just extending existing contracts.

“We still see the delays,” he said. “But we see more definitive contract awards now.”

Clark, on the other hand, reported that government customers simply don’t have the money to make planned buys.

“You can call it sequestration, you can call it new budget constraints; it’s our current reality,” he said. “I expect we’ll see more of that in 2014.”

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