Exchange: NYSE | Sector: Technology | Industry: Information Technology Services
Q2 2025
Published: Nov 8, 2024
Earnings Highlights
Revenue of $3.24B down 5.7% year-over-year
EPS of $0.23 decreased by 53.1% from previous year
Gross margin of 25.1%
Net income of 42.00M
""I’m pleased to report a solid quarter... with revenue coming in toward the high end of our range."" - Raul Fernandez
DXC Technology Company (DXC) Q2 2025 Results: Strategic Innovations Amidst a Challenging Market
Executive Summary
In the second quarter of fiscal 2025, DXC Technology Company (NYSE: DXC) reported total revenue of $3.24 billion, a decline of 5.6% year-over-year (YoY) on an organic basis, approaching the high end of guidance expectations. Adjusted EBIT margin expanded by 130 basis points to 8.6%, reflecting improved cost management efforts and effective resource allocation. The company reported a significant increase in non-GAAP diluted EPS of $0.93, marking a 33% YoY rise. DXC continues to navigate market pressures, particularly in corporate spending, yet is confident in its self-help initiatives designed to enhance operational efficiency and sales performance. Management guidance has been positively adjusted as the firm anticipates better performance in emerging segments, particularly in GenAI and consulting services. The company’s free cash flow reached $48 million in the quarter, contributing to a year-to-date total of $93 million, substantially higher compared to the prior fiscal period. Overall, while challenges remain, DXC is dedicated to executing strategic priorities that are expected to enhance its market position and financial health moving forward.
Key Performance Indicators
Revenue
3.24B
QoQ: 0.15% | YoY:-5.68%
Gross Profit
814.00M
25.12% margin
QoQ: 111.98% | YoY:1.37%
Operating Income
132.00M
QoQ: 46.67% | YoY:-74.17%
Net Income
42.00M
QoQ: 61.54% | YoY:-57.58%
EPS
0.23
QoQ: 64.29% | YoY:-53.06%
Revenue Trend
Margin Analysis
Key Insights
**Revenue:** $3.24 billion (down 5.6% YoY)
**Gross Profit:** $814 million (gross profit margin of 25.1%, YoY increase of 170 bps)
**Operating Income:** $132 million (operating margin of 4.1%)
**Net Income:** $42 million (net margin of 1.3%)
**EPS:** $0.93 (up 33% YoY)
Financial Highlights
Financial Performance Summary
- Revenue: $3.24 billion (down 5.6% YoY)
- Gross Profit: $814 million (gross profit margin of 25.1%, YoY increase of 170 bps)
- Operating Income: $132 million (operating margin of 4.1%)
- Net Income: $42 million (net margin of 1.3%)
- EPS: $0.93 (up 33% YoY)
- Free Cash Flow: $48 million, totaling $93 million YTD vs. $16 million in the prior year
Key Ratios
- Current Ratio: 1.25
- Quick Ratio: 1.25
- Debt-to-Equity Ratio: 1.58
- Adjusted EBIT Margin: 8.6%
- Book-to-Bill Ratio: 0.81 (up from 0.77 in Q1)
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
3.24B
-5.68%
0.15%
Gross Profit
814.00M
1.37%
111.98%
Operating Income
132.00M
-74.17%
46.67%
Net Income
42.00M
-57.58%
61.54%
EPS
0.23
-53.06%
64.29%
Key Financial Ratios
currentRatio
1.25
grossProfitMargin
25.1%
operatingProfitMargin
4.07%
netProfitMargin
1.3%
returnOnAssets
0.31%
returnOnEquity
1.41%
debtEquityRatio
1.58
operatingCashFlowPerShare
$1.09
freeCashFlowPerShare
$0.46
priceToBookRatio
1.25
priceEarningsRatio
22.19
Net Income vs. Revenue
Expense Breakdown
Management Commentary
Key Insights from Management
- Revenue and Margin Outlook: "Total revenue declined 5.6% year-over-year on an organic basis, yet our adjusted EBIT margin increased to 8.6%, reflecting our ongoing cost management initiatives." (Raul Fernandez, CEO)
- Sales Strategy: "We have implemented a new client relationship training program and several initiatives to improve sales discipline and execution, which are expected to enhance our performance moving forward." (Rob Del Bene, CFO)
- Future Expectations: "We have confidence that bookings will improve in the second half of the year, supported by a revamped go-to-market strategy and a stronger pipeline in the Consulting and Engineering Services segment." (Raul Fernandez)
- GenAI Initiatives: "Our GenAI offerings are beginning to generate traction, and we are excited about leveraging AI in our client solutions to improve service efficiency and overall market competitiveness." (Raul Fernandez)
"I’m pleased to report a solid quarter... with revenue coming in toward the high end of our range."
— Raul Fernandez
"We expect our book-to-bill ratio to improve in the third quarter, reflecting a focus on execution and building a solid foundation for stronger performance going forward."
— Rob Del Bene
Forward Guidance
Looking ahead, DXC expects total organic revenue to decline between 5.5% and 4.5% for the fiscal year, with an anticipated improvement in the book-to-bill ratio. Adjusted EBIT margin guidance is raised to 7.0% - 7.5%. Management also projects non-GAAP diluted EPS to range from $3.00 to $3.25, reflecting confidence in performance improvements following the first half of the fiscal year. Investors should monitor developments in self-help initiatives and AI-related engagements, which are considered critical to driving growth and profitability in the near term.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
DXC Focus
25.12%
4.07%
1.41%
22.19%
CACI
8.63%
8.63%
2.95%
20.59%
CDW
21.80%
8.00%
12.90%
26.14%
JKHY
42.00%
21.40%
4.95%
32.71%
BR
27.90%
13.30%
6.39%
46.48%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
Based on the comprehensive analysis of DXC Technology's Q2 2025 results, the company's execution on strategic initiatives suggests a phased recovery path forward. While revenue trends indicate near-term challenges, especially in GBS, the growth potential in GenAI and disciplined financial management present an attractive investment case. Investors should weigh the company’s commitment to innovation against existing market pressures while considering the anticipated improvement in bookings and profitability. Holistically, with adjustments in guidance, DXC could offer a viable upside in a stabilized market, highlighting the potential for long-term value creation.
Key Investment Factors
Growth Potential
DXC is strategically enhancing its service offerings, particularly in GenAI, which presents opportunities to capture market share and improve operational efficiencies. The company is expected to gain traction in consulting services as its new leadership team implements innovative sales strategies.
Profitability Risk
The ongoing macroeconomic pressures, especially in corporate discretionary spending, present a risk to revenue streams. Additionally, the traditional custom application development segment remains susceptible to fluctuations, potentially impacting overall business stability.
Financial Position
Despite revenue challenges, DXC’s financial position remains relatively robust with a current ratio of 1.25 and an ability to generate positive free cash flow. However, a high debt-to-equity ratio of 1.58 highlights the importance of maintaining profitability amid restructuring efforts.
SWOT Analysis
Strengths
Strong leadership team with industry experience
Expanding GenAI capabilities and service offerings
Improving sales discipline and execution measures
Increased free cash flow and operational efficiency
Weaknesses
Recent revenue decline and reliance on cost management
High debt-to-equity ratio raises financial risk
Slow recovery of the custom applications market
Opportunities
Growth potential in AI and automation services
Continued investment in software and recurring revenue from insurance business
Strategic partnerships and joint ventures with technology providers