In a major blow to DXC Technology, shares of the IT services provider dropped 18% on Friday following the revelation of a new restructuring plan and lower-than-expected revenue and profit forecasts for fiscal 2025. This move comes after a failed sale bid last year and the departure of top executives, as well as a slowdown caused by high interest rates, which hindered the company’s efforts to shift away from traditional IT outsourcing services towards cloud-based solutions.
Analysts at RBC Capital Markets have questioned DXC’s ability to recover, pointing out that despite multiple leadership changes over the years, the business still faces challenges. The company’s new management is now embarking on another restructuring effort to simplify operations, implying that fiscal year 2025 will be yet another year of transition. The restructuring is expected to incur an additional $250 million in costs in fiscal 2025 and focus on reducing excess capacity in the legacy business.
DXC’s CFO Robert Del Bene disclosed during a post-earnings call that the restructuring would affect free cash flow, with the company projecting around $400 million for fiscal 2025, significantly lower than the $756 million reported in FY24. This news led J.P.Morgan analysts to have low expectations for the company’s stock performance, noting that investors may not be receptive to another restructuring that impacts cash flow and halts share repurchases.
DXC had announced a $1 billion buyback in May 2023 but has seen its shares decline by 13% in 2024 and a total of 30% over the past two years. On Friday, the company was set to lose over $635 million in market value. Additionally, data from LSEG indicated that at least nine of the 14 analysts covering the stock had revised their target prices downwards due to the recent developments.
In conclusion, DXC Technology faces significant challenges ahead as it continues its efforts to transform its business model towards cloud-based solutions while facing declining revenue and profit expectations for fiscal 2025. The company’s ongoing restructuring efforts may also impact its ability to generate cash flow and halt share repurchases, leading some analysts to question its long-term viability as an IT services provider.
