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Decline in Contracts Depresses CACI Shares

By Ellen McCarthy
Washington Post Staff Writer
Wednesday, January 26, 2005; Page E05

Shares of CACI International Inc. sank yesterday, despite a reported 44 percent rise in fiscal second-quarter profit, as investors reacted to news that the company's contract awards had slipped significantly from the same period in 2003.

The Arlington government contractor said in its quarterly report, released Monday, that contracts with federal agencies had dropped to $235 million during the period ended Dec. 31, from $390 million in the corresponding quarter a year ago.

"The U.S. government doesn't issue contracts in accordance with quarterly cycles," CACI chief executive J.P. "Jack" London said. (Susan Biddle -- The Washington Post)

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The company met Wall Street expectations for the quarter and raised its outlook for fiscal 2005, but investors still reacted negatively to the drop in new awards. Shares of CACI fell 13 percent, or $8, to close at $52.40.

"The U.S. government doesn't issue contracts in accordance with quarterly cycles. You can have a big wave of awards one quarter and nothing the next," said chief executive J.P. "Jack" London. "Every four years there is a change that you go through and a little bit of slowdown is not unusual at all."

Some analysts attributed the decline in part to delays caused by administration changes in federal agencies, such as Attorney General John D. Ashcroft's resignation from the Department of Justice.

"It's this changing of the guard and need to obtain confirmation of the successor that . . . there was a pushing out or a deferral for bid requests for larger-size contracts," said David M. Garrity, an analyst with Caris & Co., who upgraded the company to "buy" last week and reiterated that rating yesterday. Garrity, who does not own CACI shares, said the delayed contracts could be awarded in the first half of 2005.

Joseph A. Vafi, an analyst with Jefferies and Co., downgraded the company's stock to "hold" from "buy." He agreed the awards were delayed for "various" reasons, but he also said he thinks there may be some cooling on federal investments in the types of technology integration and development services offered by companies like CACI.

"In the last couple of years there has been over-spending on [information technology] and intelligence and the like . . . and we might be going back to more normal demand," said Vafi, who does not own shares of CACI. He added that the stock may have become inflated in the past year -- it rose 40 percent in 2004 -- but said that even if demand slows, CACI's prospects remain fundamentally strong.

"The company is still growing nicely, and they're going to continue to grow," Vafi said.

The company said it expects to earn between $81.8 million and $84 million on revenue of $1.58 billion to $1.6 billion in fiscal 2005. In fiscal 2004 CACI earned $63.7 million on $1.1 billion in revenue.

London said he is confident the company's new contract awards will rebound by spring or summer, at the latest.

"Our business opportunities going forward are just as good as can be," he said.

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