Science Applications InternationalSAIC

Key highlights

• Profitability margins jumping: The company adjusted its operating margin, which measures how much profit is made on every dollar of sales after paying costs, to 11.6% from 8.4% a year ago. This increase was driven by a $12 million gain from selling an investment and better profit across its contract portfolio.
• Winning new business: The company recorded $2.1 billion in new bookings this quarter, resulting in a book to bill ratio of 1.1. This means the company is bringing in new work faster than it is completing old work, which is a key indicator of future growth.
• Shrinking the share count: Management spent $175 million to buy back its own shares, which helped lower the total number of shares outstanding to 44 million from 47.8 million last year. This move makes each remaining share more valuable by giving owners a larger piece of the company's total profit.
• Modest organic growth: Revenue grew just 0.5% when ignoring the impact of acquisitions, reaching $1.91 billion for the quarter. While total sales rose 2% compared to last year, most of that boost came from the $19 million added by the recently purchased SilverEdge business.
• Full year outlook raised: Management raised its full year profit forecast and now expects adjusted earnings between $9.90 and $10.10 per share, up from the previous high of $9.70. The company kept its revenue goal steady at a range of $7.0 billion to $7.2 billion, suggesting it is becoming more efficient at making money on its existing sales.

Our take: A very strong start to the year, defined by a significant jump in profit margins that easily cleared previous targets. While underlying sales growth remains slow at just 0.5%, the massive raise to earnings guidance and steady new contract wins strengthen the case for the company's long term efficiency plan.