DXC Beats on Q3 Earnings: Will Upbeat Guidance Lift the Stock Higher?

Core Insights - DXC Technology, Inc. reported better-than-expected non-GAAP earnings of 92 cents per share for Q3 fiscal 2025, exceeding the Zacks Consensus Estimate by 19.5% and showing a 7% year-over-year increase [1] - The company has consistently beaten earnings estimates over the past four quarters, with an average surprise of 23.8% [2] - Following strong Q3 results, DXC raised its fiscal 2025 earnings guidance, leading to a 0.7% increase in share price in after-hours trading [3] Financial Performance - DXC's Q3 revenues were $3.23 billion, surpassing the Zacks Consensus Estimate by 0.7% but down 5.1% year-over-year; organic revenues declined 4.2% [4] - Global Business Services segment revenues decreased by 1.8% year-over-year to $1.67 billion, with organic growth driven by insurance software and BPS business [5] - GIS revenues fell 8.5% year-over-year to $1.56 billion, with organic revenues down 7.8%, impacted by declines in Cloud Infrastructure, ITO & Security, and Modern Workplace divisions [6] Profitability Metrics - Non-GAAP gross profit increased by 6% to $809 million, with a gross margin improvement of 150 basis points to 25.1%, attributed to disciplined resource management and restructuring benefits [7] - Non-GAAP operating income rose to $286 million, with an operating margin expansion of 140 basis points to 8.9%, primarily due to higher gross margins [8] Balance Sheet and Cash Flow - As of the end of Q3, DXC had $1.72 billion in cash and cash equivalents, up from $1.25 billion in the previous quarter; long-term debt decreased to $3.64 billion from $3.83 billion [9] - The company generated operating cash flow of $650 million and free cash flow of $483 million in Q3, totaling $1.08 billion and $576 million respectively for the first three quarters of fiscal 2025 [10] Updated Guidance - DXC updated its fiscal 2025 guidance, now expecting revenues between $12.8 billion and $12.83 billion, down from previous guidance of $12.9-$13.1 billion; the consensus estimate is $12.95 billion [11] - The adjusted EBIT margin is projected to be approximately 7.9%, up from the previous guidance of 7-7.5%, with adjusted EPS now expected at $3.35 compared to the previous $3-$3.25 [12] - For Q4 fiscal 2025, DXC anticipates revenues between $3.10 billion and $3.13 billion, with an adjusted EBIT margin of approximately 7% and adjusted EPS of 75 cents [13]