CSC promises to cut more than $500 million in first year of turnaround
By Marjorie Censer,
Executives at Falls Church-based Computer Sciences Corp. said the company is making progress on its turnaround and expects to cut costs by $500 million to $600 million this fiscal year in an effort to remove $1 billion over 18 months.
For the first quarter of the fiscal year, profit hit $42 million (26 cents per share), down from $185 million ($1.17) in the same three-month period a year earlier. Revenue declined 1.9 percent to $3.96 billion.
The company’s struggles “did not happen in one year or one quarter,” said Mike Lawrie, the company’s new chief executive, of CSC’s declining performance. “I’m encouraged, but I would caution that there is a lot of work to do here. We have just gotten comfortable that we’ve identified most of the problems.”
Last quarter, Lawrie outlined the plan to remove $1 billion in costs and expenses as part of a larger strategy to bring the troubled company — which recorded a loss of more than $4.2 billion last year — back in line.
Company officials went into greater detail last week, explaining that they are working to adjust about 40 problematic contracts worth roughly $3 billion total. Lawrie said CSC is monitoring each of the contracts on a weekly basis and working on them individually.
In some cases, CSC may renegotiate the terms; in others, the company is bringing in new leadership or working out a deal that brings in less revenue but more profit, according to Lawrie.
He said CSC is trying to avoid the same types of problems in its new contracts.
“We are making sure that we have qualified project managers and account executives on these big deals before we get started,” he said. “We are beginning to tackle some of these issues before they become issues.”
At the same time, CSC is consolidating its own spending to use fewer vendors and negotiating better terms with them, said Paul N. Saleh, CSC’s chief financial officer. The company is also restructuring its workforce and trying to use its overseas employees more efficiently.
Lawrie said CSC isn’t looking to hire more abroad; the company has more than 22,000 employees in India, for instance.
“It’s not like we have to go scale up offshore resources,” he said. “What we need to do is utilize that more.”
Company officials said most of the savings achieved this year will be returned to the company’s bottom line.
“You can’t save your way to prosperity but … we can make some significant improvements in our operating performance just by managing ourselves more effectively,” Lawrie said.
David Grossman of Stifel Nicolaus said it’s too early for CSC to be thinking about growth.
“Right now, they’re just trying to improve the underlying profitability and cash flow of the business,” he said.