Booz Allen Cuts Outlook as Government Funding Stalls

For its three months ended Sept. 30, Booz Allen reported a profit of $175 million, or $1.42 a share. Stripping out certain one-time items, adjusted earnings were $1.49 a share. - Jason C. Andrew/Bloomberg News

Booz Allen slashed its outlook for the year as it faces a prolonged and severe slowdown in government contract funding, particularly in its civil sector.

“The reacceleration of our business will take longer than we expected,” Chief Executive Horacio Rozanski said Friday on a call with analysts. “I am disappointed in our results this quarter, and that we are lowering guidance across all key metrics.”

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Shares were recently trading 10% lower, at $90.32, after the company posted lower profit and revenue in its fiscal second quarter.

Booz Allen’s updated outlook reflects a stark contrast between its two main government portfolios. The company’s civil business is operating in the most challenging market in a generation, Rozanski said, noting that contracts have been cut as funding has stalled.

The outlook isn’t improving, he added. Booz Allen anticipates revenue from its civil business will fall in the low-20% range this year, and the segment isn’t expected to return to growth for several quarters.

Booz Allen’s national security portfolio, which combines its defense and intelligence markets, is in better shape. The company continues to win contracts in these markets, thanks to strong demand for cybersecurity, artificial-intelligence and war-fighting technologies, Rozanski said.

But, “simply put, the strength in our national security portfolio cannot offset the current-year decline in our civil business,” he said.

Booz Allen, which makes 98% of its $12 billion in annual revenue from government-related work, now expects adjusted earnings of $5.45 to $5.65 a share. Revenue is projected to fall 4% to 6% year-over-year, to between $11.3 billion and $11.5 billion.

Booz Allen had previously guided for adjusted earnings of $6.20 to $6.55 a share, and for revenue to be flat to up 4% this year, to between $12 billion and $12.5 billion. Analysts surveyed by FactSet are looking for adjusted earnings of $6.30 a share and revenue of $12.06 billion.

To offset current headwinds, finance chief Matt Calderone said the company will restructure its business to cut $150 million in costs. It will also aim to double down in business lines with growth potential and work with customers to build more commercially oriented solutions.

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“This will provide a modest benefit to our bottom-line financial results this fiscal year,” Calderone said, noting the full impact will be felt next year.

For its three months ended Sept. 30, Booz Allen reported a profit of $175 million, or $1.42 a share, down from $390 million, or $3.01 a share, in the same quarter last year.

Stripping out certain one-time items, adjusted earnings were $1.49 a share. Analysts polled by FactSet had expected $1.51 a share.

Revenue fell 8.1% to $2.89 billion, below the $2.97 billion that Wall Street had modeled.

The McLean, Va., company earlier this year found itself in the crosshairs of the Trump administration and disclosed plans to cut roughly 2,500 jobs, amid a slowdown in government spending and plans to cut spending on federal contracts.

Write to Connor Hart at [email protected]

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