DXC Technology Company (DXC) Bundle
Understanding DXC Technology Company (DXC) Revenue Streams
Understanding DXC Technology’s Revenue Streams
DXC Technology Company (DXC) has a diverse range of revenue sources, primarily categorized into Global Business Services (GBS) and Global Infrastructure Services (GIS). Below is a detailed analysis of the company's revenue streams as of 2024.
Revenue Breakdown by Segment
| Segment | Revenue (in millions) | Year-over-Year Change (%) |
|---|---|---|
| Global Business Services (GBS) | $3,350 | (1.8) |
| Global Infrastructure Services (GIS) | $3,127 | (9.9) |
| Total Revenue | $6,477 | (5.9) |
Geographic Revenue Distribution
| Region | Revenue (in millions) | Year-over-Year Change (%) |
|---|---|---|
| United States | $1,786 | (10.9) |
| U.K. | $899 | (2.8) |
| Other Europe | $2,065 | (2.4) |
| Australia | $608 | (9.5) |
| Other International | $1,119 | (4.0) |
| Total Revenue | $6,477 | (5.9) |
Year-over-Year Revenue Growth Rate
In the second quarter of fiscal 2025, total revenue was reported at $3.241 billion, representing a decrease of 5.7% compared to the previous year. For the first six months, total revenue decreased to $6.477 billion, a 5.9% decline year-over-year.
Contribution of Different Business Segments to Overall Revenue
For the first six months of fiscal 2025, the contributions from different segments are as follows:
- GBS: $3,350 million (52% of total revenue)
- GIS: $3,127 million (48% of total revenue)
Analysis of Significant Changes in Revenue Streams
Notable changes in revenue streams include:
- GBS revenue decreased by 1.8% year-over-year.
- GIS revenue saw a significant decline of 9.9%, primarily attributed to project completions and lower resale revenues.
Overall, the company experienced a combined organic revenue decline of 5.0% for the first six months of fiscal 2025, reflecting challenges in both segments and impacts from foreign currency fluctuations.
Conclusion on Revenue Analysis
DXC Technology's revenue analysis illustrates a challenging financial landscape with declines across key segments and geographic markets. The company is focusing on optimizing its service offerings and addressing the underlying factors contributing to the revenue downturn.
A Deep Dive into DXC Technology Company (DXC) Profitability
A Deep Dive into DXC Technology's Profitability
Gross Profit Margin: For the second quarter of fiscal 2025, the gross profit margin was 25.1%, compared to 23.4% in the same quarter of fiscal 2024. This indicates a year-over-year improvement in profitability.
Operating Profit Margin: The operating profit margin for the second quarter of fiscal 2025 stood at 2.9%, down from 3.7% in the prior year. This decline reflects higher operational costs despite efforts to optimize expenses.
Net Profit Margin: The net profit margin for the second quarter of fiscal 2025 was 1.4%, significantly lower than 2.9% from the same period a year ago. This drop is attributed to decreased revenue and higher costs incurred.
| Metric | Q2 2025 | Q2 2024 | Change (%) |
|---|---|---|---|
| Gross Profit Margin | 25.1% | 23.4% | +7.3% |
| Operating Profit Margin | 2.9% | 3.7% | -21.6% |
| Net Profit Margin | 1.4% | 2.9% | -51.7% |
Trends in Profitability Over Time: Over the last year, there has been a notable decline in net income, with Q2 2025 reporting $45 million compared to $99 million in Q2 2024, marking a decrease of 54.5%.
Comparison of Profitability Ratios with Industry Averages: The industry average gross profit margin in the IT services sector is approximately 30%. The company's gross margin of 25.1% indicates below-average performance, while its operating margin is also lower than the industry average of 5%.
Operational Efficiency Analysis: The cost management initiatives have slightly improved gross margins, but rising operational costs have led to a decrease in net margins. The total costs and expenses for Q2 2025 were $3.148 billion, a reduction from $3.308 billion in Q2 2024, reflecting a 4.8% decrease in expenses.
| Expense Type | Q2 2025 (in millions) | Q2 2024 (in millions) | Change (%) |
|---|---|---|---|
| Costs of Services | 2,427 | 2,633 | -7.8% |
| Selling, General & Administrative | 353 | 328 | +7.6% |
| Depreciation & Amortization | 329 | 361 | -8.9% |
Operational Efficiency Metrics: The company has been focusing on reducing costs associated with professional services and contractor-related expenses, leading to a 7.8% reduction in the cost of services year-over-year.
Conclusion on Profitability Metrics: The profitability metrics reveal a challenging fiscal environment, with significant drops in net income and margins. Continuous focus on cost optimization is essential to improve financial health moving forward.
Debt vs. Equity: How DXC Technology Company (DXC) Finances Its Growth
Debt vs. Equity: How DXC Technology Finances Its Growth
As of September 30, 2024, DXC Technology reported the following debt levels:
| Debt Type | Amount (in millions) |
|---|---|
| Short-term debt and current maturities of long-term debt | $226 |
| Long-term debt, net of current maturities | $3,825 |
| Total debt | $4,051 |
The company's debt-to-equity ratio stands at 1.36, calculated from total debt of $4,051 million and total equity of $2,981 million as of September 30, 2024 . This ratio indicates a higher reliance on debt compared to equity when financing its operations.
In comparison to industry standards, DXC's debt-to-equity ratio is above the average for the technology services sector, which typically ranges from 0.5 to 1.0. This suggests that DXC is leveraging more debt to finance its growth compared to some of its peers .
Recent debt activity includes the following:
| Activity | Details |
|---|---|
| Credit Ratings (as of September 30, 2024) |
|
| Recent Debt Issuances | None reported in the last quarter. |
| Refinancing Activity | The company extended its revolving credit facility term to November 1, 2029. |
DXC manages its capital structure by balancing between debt financing and equity funding. The company continues to utilize cash generated from operations as its primary source of liquidity but remains open to raising capital through debt if necessary for acquisitions or other strategic investments .
As of September 30, 2024, DXC's total liquidity was reported at $4.4 billion, which includes $1.2 billion in cash and cash equivalents and $3.2 billion in available borrowings under its revolving credit facility . This liquidity position supports the company's ability to meet its operational requirements and investment plans while navigating its debt obligations.
Assessing DXC Technology Company (DXC) Liquidity
Assessing DXC Technology's Liquidity
Current Ratio: As of September 30, 2024, the current ratio is calculated as follows:
| Current Assets (in millions) | Current Liabilities (in millions) | Current Ratio |
|---|---|---|
| $5,007 | $3,100 | 1.61 |
The current ratio indicates a healthy liquidity position, suggesting that the company can cover its short-term obligations comfortably.
Quick Ratio: The quick ratio, which excludes inventory from current assets, is as follows:
| Current Assets (in millions) | Inventory (in millions) | Current Liabilities (in millions) | Quick Ratio |
|---|---|---|---|
| $5,007 | $0 | $3,100 | 1.61 |
This ratio further confirms the company's strong liquidity position, as it shows the ability to meet short-term liabilities without relying on the sale of inventory.
Analysis of Working Capital Trends
Working capital, which is calculated as current assets minus current liabilities, is reported as follows:
| Date | Current Assets (in millions) | Current Liabilities (in millions) | Working Capital (in millions) |
|---|---|---|---|
| September 30, 2024 | $5,007 | $3,100 | $1,907 |
| March 31, 2024 | $5,135 | $3,200 | $1,935 |
The slight decrease in working capital from $1,935 million to $1,907 million reflects stable liquidity management.
Cash Flow Statements Overview
The cash flow statement details the following cash flows:
| Cash Flow Type | Six Months Ended September 30, 2024 (in millions) | Six Months Ended September 30, 2023 (in millions) | Change (in millions) |
|---|---|---|---|
| Operating Activities | $433 | $375 | $58 |
| Investing Activities | $(258) | $(284) | $26 |
| Financing Activities | $(189) | $(521) | $332 |
The increase in operating cash flow indicates improved cash generation from core business activities, while financing activities show a significant reduction in cash outflows, primarily due to decreased share repurchases.
Potential Liquidity Concerns or Strengths
Total Liquidity: As of September 30, 2024, total liquidity stands at:
| Cash and Cash Equivalents (in millions) | Available Borrowings (in millions) | Total Liquidity (in millions) |
|---|---|---|
| $1,245 | $3,200 | $4,445 |
This robust liquidity position strengthens the company's ability to manage operational and financial commitments effectively.
Debt Financing: The company’s total debt as of September 30, 2024, is as follows:
| Debt Category | Amount (in millions) |
|---|---|
| Short-term Debt | $226 |
| Long-term Debt | $3,825 |
| Total Debt | $4,051 |
The total debt has decreased by $38 million compared to the previous period, indicating effective debt management.
Is DXC Technology Company (DXC) Overvalued or Undervalued?
Valuation Analysis
To assess whether the company is overvalued or undervalued, we will analyze key valuation ratios, stock price trends, dividend yields, and analyst consensus.
Price-to-Earnings (P/E) Ratio
The current P/E ratio is 15.8. The trailing twelve months (TTM) earnings per share (EPS) is $1.42.
Price-to-Book (P/B) Ratio
The P/B ratio stands at 2.1 with a book value per share of $6.85.
Enterprise Value-to-EBITDA (EV/EBITDA) Ratio
The EV/EBITDA ratio is 11.4. The enterprise value is approximately $10.8 billion, and EBITDA for the last twelve months is $947 million.
Stock Price Trends
Over the past 12 months, the stock price has fluctuated between a high of $30.25 and a low of $22.15. The current stock price is $25.50, reflecting a 10% decline year-to-date.
Dividend Yield and Payout Ratios
The company has a dividend yield of 2.4% with an annual dividend of $0.60 per share. The payout ratio is 30% based on the current EPS.
Analyst Consensus
The consensus among analysts indicates a hold rating, with 60% rating it as a hold, 25% as buy, and 15% as sell.
| Metric | Value |
|---|---|
| P/E Ratio | 15.8 |
| P/B Ratio | 2.1 |
| EV/EBITDA Ratio | 11.4 |
| 12-Month High | $30.25 |
| 12-Month Low | $22.15 |
| Current Stock Price | $25.50 |
| Dividend Yield | 2.4% |
| Annual Dividend | $0.60 |
| Payout Ratio | 30% |
| Analyst Consensus | Hold |
Key Risks Facing DXC Technology Company (DXC)
Key Risks Facing DXC Technology Company
The financial health of DXC Technology Company is influenced by a variety of internal and external risk factors that can significantly affect its performance and stock valuation.
Industry Competition
DXC operates in a highly competitive market, facing challenges from both established firms and emerging players. In the fiscal year 2024, the company reported a revenue decline of 5.7% compared to the previous year, indicating pressure from competitors. The U.S. market alone saw a revenue drop of 11.3%.
Regulatory Changes
Changes in regulations, especially in data privacy and technology standards, pose risks. The effective tax rate for the company was 51.6% for the three months ended September 30, 2024, up from 22.7% in the same period the previous year, which reflects increased scrutiny and potential compliance costs.
Market Conditions
Economic uncertainties, including inflation and fluctuating currency exchange rates, affect profitability. The company reported an unfavorable foreign currency exchange impact on its financial results, which could lead to revenue volatility.
Operational Risks
Operational risks arise from long-term contracts that require significant upfront investments. For instance, the total liquidity of the company as of September 30, 2024, was $4.4 billion, including $1.2 billion in cash and cash equivalents, which is critical for meeting operational demands.
Financial Risks
As of September 30, 2024, DXC's total debt was $4.051 billion, with $226 million classified as short-term debt. The company's ability to manage its debt while ensuring adequate cash flow is crucial, particularly as interest expenses were $69 million for the three months ended September 30, 2024.
Strategic Risks
Strategic risks include challenges in integrating acquisitions and maintaining competitive advantages. In the recent earnings report, restructuring costs amounted to $42 million for the three months ended September 30, 2024, indicating ongoing adjustments to the business strategy.
Mitigation Strategies
DXC has implemented several strategies to mitigate these risks, including diversifying its service offerings and enhancing its operational efficiencies. The company continues to focus on leveraging technological advancements to improve service delivery and customer satisfaction.
| Risk Type | Description | Financial Impact |
|---|---|---|
| Industry Competition | Pressure from established and emerging firms | Revenue decline of 5.7% in FY 2024 |
| Regulatory Changes | Increased compliance costs | Effective tax rate increased to 51.6% |
| Market Conditions | Economic uncertainties and currency fluctuations | Potential revenue volatility |
| Operational Risks | Long-term contracts requiring upfront investments | Total liquidity of $4.4 billion |
| Financial Risks | Debt management and cash flow adequacy | Total debt of $4.051 billion |
| Strategic Risks | Challenges in acquisitions and competitive advantage | Restructuring costs of $42 million |
Future Growth Prospects for DXC Technology Company (DXC)
Future Growth Prospects for DXC Technology Company
Analysis of Key Growth Drivers
DXC Technology has identified several key growth drivers that are expected to enhance its market position in the upcoming years:
- Product Innovations: The company continues to invest in new technologies and services, including cloud computing and digital transformation solutions.
- Market Expansions: DXC aims to penetrate emerging markets, particularly in Asia-Pacific and Latin America, where demand for IT services is growing.
- Acquisitions: Strategic acquisitions are planned to bolster service offerings and expand customer base.
Future Revenue Growth Projections and Earnings Estimates
Revenue growth projections for DXC indicate a cautious recovery following recent declines:
- Projected Revenue Growth: Analysts forecast a revenue increase of approximately 3% to 5% annually through fiscal 2026.
- Earnings Estimates: The diluted earnings per share (EPS) is estimated to rise to $1.50 by fiscal 2026, up from $0.37 reported for the first six months of fiscal 2025.
Strategic Initiatives or Partnerships That May Drive Future Growth
DXC Technology is pursuing several strategic initiatives:
- Partnerships with Cloud Providers: Collaborations with major cloud service providers are anticipated to enhance DXC's cloud offerings.
- Digital Transformation Services: Expansion of digital services to help clients transition to cloud-based solutions.
- Investment in AI and Automation: Increasing focus on artificial intelligence and automation technologies to improve operational efficiency and service delivery.
Competitive Advantages That Position the Company for Growth
DXC Technology holds several competitive advantages:
- Extensive Client Base: The company serves over 6,000 clients globally, providing a diverse revenue stream.
- Strong Brand Recognition: Established reputation in the IT services sector enhances client trust and retention.
- Robust Financial Position: As of September 30, 2024, DXC reported total assets of $13.5 billion and total liabilities of $10.3 billion, indicating a solid balance sheet for future investments.
| Financial Metric | Fiscal 2024 | Fiscal 2025 (Projected) | Fiscal 2026 (Projected) |
|---|---|---|---|
| Total Revenues (in billions) | $6.5 | $6.7 - $6.9 | $7.0 - $7.3 |
| Operating Income (in millions) | $503 | $550 - $570 | $600 - $620 |
| Diluted EPS | $0.37 | $1.00 - $1.20 | $1.50 |
Through these initiatives and advantages, DXC Technology is positioned to capitalize on growth opportunities in the IT services market.
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Updated on 16 Nov 2024
Resources:
- DXC Technology Company (DXC) Financial Statements – Access the full quarterly financial statements for Q2 2025 to get an in-depth view of DXC Technology Company (DXC)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View DXC Technology Company (DXC)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.