What happened
Shares of Conduent (CNDT -0.66%) traded up more than 15% on Thursday after the business services firm released third-quarter results and updated investors on its strategic review. The quarter was fine, but the shares are rallying on the company's pledge to overhaul the business.
So what
It has been a rough year for Conduent shareholders, with shares of the outsourcing specialist plunging after both first- and second-quarter results and down about 50% year to date heading into earnings. CEO Ashok Vemuri, who guided the company through its 2017 spinoff from Xerox Holdings, stepped down in May amid a battle with activist investor Carl Icahn.
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In its third-quarter results, released after markets closed Wednesday, the company reported adjusted earnings of $0.16 per share on revenue of $1.1 billion, matching the analyst consensus earnings estimate and beating slightly on revenue. The results are still showing signs of weakness -- adjusted EBITDA for the quarter was down 19% year over year -- but it appears that under new CEO Cliff Skelton, the company is stabilizing.
Skelton said the board is also making progress on a strategic review initiated midyear, and said an overhaul of the business is likely.
"We anticipate completion of the review in late Q4 2019 or early Q1 2020 and would aim to begin taking action on any potential divestitures in the first half of 2020," Skelton said. "The focus of this review is to create shareholder value by looking at potentially divesting assets that we believe have a scarcity value in the market and potentially may command a premium, while seeking to simplify the remaining company to take advantage of strong market opportunities and growth prospects."
Now what
Despite its progress, Conduent remains a tech stock in transition, forecasting full-year 2019 revenue to fall 4% to 5% from 2018 on a constant currency basis, and for full-year adjusted EBITDA margin to come in between 10.8% and 11.6%, compared with 11.9% in 2018. On a post-earnings call with investors, Skelton said the company believes "we could unlock significant value" through divestitures, while also overhauling Conduent's capital allocation strategy and considering stock repurchases and other opportunities.
Words like that from a CEO are music to an investor's ears, but Conduent still has a lot to prove.
