DXC Q1 Earnings Call: Revenue Misses Expectations, Management Focuses on Bookings and Turnaround

IT services provider DXC Technology (NYSE:DXC) fell short of the market’s revenue expectations in Q1 CY2025, with sales falling 6.4% year on year to $3.17 billion. Its non-GAAP EPS of $0.84 per share was 8.6% above analysts’ consensus estimates.

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StockStory’s Take

DXC’s first quarter results reflected ongoing challenges in reversing a longstanding revenue decline, as management continued to emphasize the operational overhaul underway. CEO Raul Fernandez attributed the performance to a combination of structural and cultural changes, including significant new hires and leadership turnover, aimed at stabilizing the business. He pointed to a 20% increase in bookings and a second straight quarter with a book-to-bill ratio above 1.0, suggesting early signs of improved market traction. Fernandez acknowledged that the rebuilding of operational capabilities was “deeper and more extensive” than initially anticipated, with a focus on streamlining sales processes and incentivizing performance. Notably, a major contract win with Carnival Cruise Line was highlighted as evidence of progress in large enterprise deals, though management remained candid about the need for continued discipline in execution.

Looking ahead, DXC’s guidance is shaped by expectations of ongoing investment in sales, marketing, and core solution areas, while recognizing persistent headwinds in key markets. CFO Rob Del Bene outlined that the company’s outlook incorporates a wider range to account for macroeconomic uncertainty and project-based volatility, particularly in consumer and media sectors. Fernandez stated, “Our strategy is clear, and we are committed to executing with the discipline required for DXC to generate sustainable and profitable growth.” Management expects longer-duration contracts and increased AI-related projects to gradually improve revenue visibility, but cautioned that meaningful top-line growth depends on scaling recent wins and further pipeline development. The company’s decision to resume share repurchases also reflects a belief in its turnaround strategy, though leadership admitted that the timing for a return to revenue growth remains uncertain.

Key Insights from Management’s Remarks

Management attributed the quarter’s performance to improvements in sales execution, major new client wins, and ongoing investments in operational capabilities. They also acknowledged ongoing revenue headwinds and the need for further progress in key segments.

• Sales and leadership overhaul: CEO Raul Fernandez reported 22 new leadership hires and 14 departures within 15 months, including the onboarding of a chief revenue officer, to rebuild the sales organization and align incentives more closely with performance metrics.
• Large contract momentum: DXC secured a significant new contract with Carnival Cruise Line, which management described as a competitive win showcasing the company’s ability to deliver integrated infrastructure and application management for large-scale clients.
• Bookings growth and pipeline: The company achieved a 20% year-over-year increase in bookings and maintained a book-to-bill ratio above 1.0 for a second consecutive quarter, indicating improved pipeline quality and future revenue potential.
• AI-driven service offerings: Management highlighted early progress in generative AI (GenAI) pilots across industries, with a focus on building repeatable, scalable solutions to meet growing customer demand for digital modernization and automation.
• Segment-specific dynamics: Consulting and engineering services (CES) saw strong bookings in strategic projects but continued pressure in custom application work, while insurance services recorded mid-single-digit growth, offset by one-time items affecting the quarter’s rate.

Drivers of Future Performance

DXC’s outlook centers on expanding its pipeline, driving adoption of AI-enabled solutions, and scaling enterprise contracts, but remains cautious given ongoing market and project-based uncertainties.

• Expanding AI and digital offerings: Management expects increased investment in developing scalable, replicable AI solutions and digital transformation services to drive future growth, particularly in financial services where client demand is strongest.
• Margin pressures from investment: The company plans to continue investing in sales, marketing, and solution development, which may weigh on margins in the near term as leadership prioritizes building long-term capabilities over immediate profitability.
• Macroeconomic and industry risks: Guidance for the year allows for potential volatility in consumer, retail, and media verticals, with CFO Rob Del Bene noting that lower-end forecasts account for possible demand softness and project delays in these sectors.

Catalysts in Upcoming Quarters

In coming quarters, the StockStory team will closely watch (1) DXC’s ability to convert recent large bookings, like the Carnival Cruise Line deal, into sustainable revenue streams; (2) the pace at which AI and digital transformation projects move from pilots to scaled deployments; and (3) execution on leadership stability and improvements in sales effectiveness. Progress on segment restructuring and visibility into insurance and consulting performance will also be important indicators of turnaround momentum.

DXC currently trades at a forward P/E ratio of 4.4×. At this valuation, is it a buy or sell post earnings? See for yourself in our full research report (it’s free).

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