Unisys shares leapt 22% in after hours trading overnight after the company surprised the markets with a healthier than expected set of Q3 results. But this looks like a temporary respite from long-term discomfort - not much else has changed at Unisys.
Headline revenue was up 6% yoy to $1.02bn, but only “up slightly” on a constant currency basis (which sounds like somewhere between zero and 1%). Operating margin was 11.1% compared to 7.9% in the same period last year, thanks to a 48% rise in operating profits. It was no doubt this profits jump and the expectation-busting $1.63 of diluted EPS that prompted the share price hike.
It makes a pleasant change not to be reporting falling numbers yet again for Unisys, which posted an 8% revenue drop in 2010 and further declines in Q1 and Q2 of this year (see Unisys still in pain). A key driver was technology sales, especially those high-end ClearPath servers and software. Overall technology revenue was up 36%, with an operating margin just shy of 26%. But there was better news in services too, where revenues were up 2% and operating margins were 8.7%. Take out the declining US Federal business, services growth was 12%.
However, the orders news isn’t great. Q3 services orders were down by “low double digits” yoy, although they did rise “mid single digits” from Q2. Growth in services orders was reported in the UK, non-US federal and Latin America. But it doesn’t sound like there’s a lot of growth on the books on the services front. Meanwhile, CEO Ed Coleman was cautious about sustaining services operating margins within the 8-10% target range – “We continue to have work to do to make sure that we can do that both consistently and predictably”, he told analysts. Moreover, technology sales are highly seasonal. ClearPath flew off the shelves in Q3 but it’s not showing any growth for the year to date or expected to for the full year.
So a better quarter from Unisys, but has it turned a corner? Even having generated some much-needed cash to pay down its debts, it’s still the same company that has been underperforming the market for a long time. It just doesn’t seem to have the rights cards in its hand to pull off a long-term reversal of its fortunes.