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Earnings Results: IT consultant DXC’s stock rocked as cloud weakness leads to big earnings miss and cut in outlook

DXC Technology Co. investors had their worst day in four years on Thursday, after the information-technology consultant missed fiscal first-quarter earnings expectations and slashed its full-year outlook due to particular weakness in its cloud and outsourcing businesses.

“In the quarter, we were impacted by slowdown in customer expenditures,” said Chief Financial Officer Rob Del Bene on the post-earnings conference call with analysts, according to an AlphaSense transcript. “This is mainly the resale of IT equipment, such as PCs, networking gear and servers and project work.”

The stock DXC, -29.44% plummeted 29.4% to $19.10, enough to pace the S&P 500’s SPX and New York Stock Exchange’s decliners. It closed at the lowest price since Nov. 6, 2020, and suffered the biggest one-day selloff since it plunged 30.5% on Aug. 9, 2019.

The company reported fiscal first-quarter revenue for the quarter to June 30 late Wednesday that fell 7% to $3.45 billion, to miss the FactSet consensus of $3.56 billion, as global business services revenue declined 3.1% to $1.7 billion and global infrastructure services revenue slumped 10.6% to $1.74 billion.

Within the GIS business, the Cloud and IT Outsourcing businesses suffered the most weakness, while the Modern Workplace business experienced “moderating” declines.

“In the quarter, we were impacted by slowdown in customer expenditures,” Del Bene said. “This is mainly the resale of IT equipment, such as PCs, networking gear and servers and project work.”

For the full fiscal year, the company cut its revenue guidance range to $13.88 billion to $14.03 billion from the $14.4 billion to $14.55 billion provided in May.

The full-year warning follows similar outlook cuts from rival consultants Accenture PLC ACN, -0.20% and Infosys Ltd. INFY, -0.06%, which cited broader macroeconomic weakness.

“The declines in resale and projects are consistent with what is taking place in the industry, with the economic environment impacting spending,” Del Bene said.

DXC also reported net income that fell to $36 million, or 17 cents a share, from $102 million, or 43 cents a share, in the same period a year ago. Excluding nonrecurring items, adjusted earnings per share of 63 cents was well below the FactSet consensus of 82 cents.

“In the first quarter, the revenue shortfall impacted profitability, particularly since the revenue weakness was not evident until late in the quarter,” Del Bene said.

For fiscal 2024, the guidance range for adjusted EPS was lowered to $3.15 to $3.40 from $3.80 to $4.05.

BMO Capital analyst Keith Bachman followed by downgrading DXC’s stock to market perform, while lowering his price target to $25 from $27.

“In short, we think a tough macro is a challenging time to continue a turnaround, and we do not envision relief in the medium-term,” Bachman wrote in a note to clients. “More specifically, while GBS is performing reasonably well, GIS continues to flounder.”

DXC’s stock has tumbled 27.9% year to date, while shares of Accenture have rallied 18.9% and shares of Infosys have slipped 8.3%. In comparison, the S&P 500 has advanced 17.3%.

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