DXC Technology tumbles as investors fret over latest restructuring plan

By Thomson Reuters May 17, 2024 | 9:16 AM

(Reuters) – Shares of DXC Technology slumped 18% 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 $635 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)