DXC Technology tumbles as investors fret over latest restructuring plan

DXC Technology

17/05/2024 14:08

May 17 (Reuters) - Shares of DXC Technology  DXC.N 
slumped 24% before the bell on Friday, after the IT services
provider unveiled a new revamp and forecast fiscal 2025 revenue
and profit below estimates.
    The latest attempt comes as a sale bid failed last year and
exits of top executives and a slowdown due to high interest
rates hampered efforts to pivot away from its declining legacy
business of IT outsourcing services to cloud-based solutions.
    "DXC has been in a transition for multiple years and despite
the best efforts of multiple leaders, one has to ask the
question as to if this business can be fixed," analysts at RBC
Capital Markets wrote in a client note.
    "New management is undertaking yet again another
restructuring to streamline the business, which suggests that
FY25 will be another transition year."
    The latest restructuring will cost an additional $250
million in fiscal 2025 and aimed to cut back on excess capacity
in its legacy business, finance chief Robert Del Bene said in a
post-earnings call. 
    Bene assumed the role after Ken Sharp departed in September.
In December, Raul Fernandez took charge as chief executive after
Mike Salvino stepped down. 
    The restructuring will also weigh on DXC's free cash flow,
with the company forecasting about $400 million for fiscal 2025,
well below the $756 million it reported in FY24.
    "Stock tolerance for yet another restructuring that consumes
near-term free cash flow and pauses share repurchases in FY25 is
likely low," J.P.Morgan analysts said.
    Shares of DXC, which announced a $1 billion buyback in May
2023, have lost 13% of their value so far in 2024, after
crashing a combined 30% in the past two years.
    It was on track to lose more than $850 million in market
value on Friday. 
    At least nine of the 14 analysts covering the stock lowered
their target prices, according to LSEG data.
        

 (Reporting by Harshita Mary Varghese; Editing by Shilpi
Majumdar and Sriraj Kalluvila)
 ((HarshitaMary.Varghese@thomsonreuters.com;))