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What: Computer Sciences (NYSE: CSC ) dropped 18% in intraday trading today after issuing disappointing earnings and guidance.
So what: EPS from continuing operations was $1.18 per share, thanks to a massive one-time tax credit. According to Stifel Nicolaus, the company missed the $0.69 consensus estimate by $0.27 after adjusting for the full impact of the tax credit. Revenue of $4 billion grew 3% year over year.
Now what: The company said weakness in its managed services sector hurt margins last quarter. Management reiterated revenue and EPS guidance for fiscal 2012, which ends in March, but added an acquisition to the outlook to maintain guidance. What's more, operating margin guidance was lowered from between 8.75% and 9.25% to between 7% and 7.50%, suggesting the core business is deteriorating. The company may look cheap at a P/E ratio of 6.5, but there is nothing to suggest EPS will grow. Furthermore, its large exposure to government spending poses a meaningful risk to the outlook.
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