Tuesday, July 3, 2007

Tight margins and an unfavorable market have forced CACI International Inc. to lower the bar and focus on the future.

CACI is an Arlington firm that provides information-technology services to the federal government.

Last week, CACI surprised Wall Street by releasing a 2008 fiscal outlook that fell short of what many analysts had forecast.

The company said that it expects 2008 earnings to fall between $76.5 million ($2.50 per diluted share) and $85.7 million ($2.80 per share).

“You could drive a truck through that guidance range,” said Alex Hamilton, an analyst at the Benchmark Company LLC, a New York financial-services firm. “They are having a hard time anticipating the funding environment,” he said.

Since the “war on terror” began in 2003, discretionary funds that would have normally been allocated to federal programs, such as information technology, have been allocated to support the war efforts in Iraq and Afghanistan.

As a result, federal spending in the information-technology sector has been tight and has created a difficult market for companies like CACI.

“In the past couple of years, CACI has set the bar too high,” said Jason Kupferberg, an analyst at UBS, a financial-services firm based in Zurich.

“This is a more prudent approach, to set the bar at levels that are more achievable,” he said.

Paul Cofoni, who stepped into his new role as CACI’s new president and chief executive officer yesterday, couldn’t agree more.

“I feel that our [outlook] numbers [for the fiscal year 2008] were very realistic numbers, given the environment we are currently in,” said Mr. Cofoni.

Formerly the head of U.S. operations, Mr. Cofoni replaces former CEO Jack London, who became executive chairman of the board at CACI.

“I feel badly that we gave [some analysts] a surprise, but we were puzzled as to why [their expectations] were so high,” said Mr. Cofoni.

Shares of CACI slipped yesterday to $48.83, down 2 cents from Friday.

Net income for the first quarter ended March 31 fell 8 percent to $57.7 million ($1.84 per diluted share) compared with $62.8 million ($2.02) the previous year.

Revenue for the same period grew 11 percent to $1.42 billion from $1.28 billion a year ago.

“Without a doubt, this is a tough market, even for firms performing at their peak,” said Erik Olbeter, an analyst at the D.C. office of the Stanford Group Company, a Houston-based financial-services firm.

“CACI has struggled to maintain organic growth in this market,” said Mr. Olbeter. “But everything at CACI is fixable, and they have started to take good, positive initial steps in trying to restart organic growth.”

Mr. Cofoni said that the company’s merger-and-acquisitions program will take a front seat for the next few years as they wait for the war in Iraq to stabilize.

“The demand for federal information-technology [services] is growing, and that funding will eventually return to satisfy these needs,” said Mr. Cofoni.

“In the meantime, we are doing all the prudent things we need to do … so that when we merge into a higher organic growth periodm we will have all the people and tools and possibilities in place.”

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