BUSINESS
11/10/2011 05:55 EST | Updated 01/23/2014 06:58 EST

CGI says U.S. government contracts gaining steam, offsetting commercial weakness

MONTREAL - CGI Group says its U.S. commercial business remains challenging but contracts with the federal, state and local governments are picking up steam, especially in the last couple of months.

"The U.S. looks to me a little more favourably than it did last quarter," CEO Michael Roach said Thursday during a conference call.

The Montreal-based information technology company said its fourth quarter profits decreased to $73.1 million, or 27 cents per share, from $84.1 million or 30 cents a year ago.

The decrease reflects a pre-tax charge of $45.4 million related to the advancement of real estate consolidation plans, workforce adjustments and a non-cash impairment charge related to an underperforming part of its business.

The Montreal-based company faced $11.4 million of costs after cutting about 200 employees at 125 offices around the world in recent months. CGI has some 31,000 employees.

It also took a $22.3 million charge from rationalizing real estate caused by staff reductions.

Revenue increased to $1.03 billion from $1.01 billion.

CGI (TSX:GIB.A) continues to win new government contracts at all levels, including adding the Department of Labor as a new client, which was announced Thursday.

Despite concerns about the U.S. budget impasse, Roach said he's confident that IT solutions offered by his company will increasingly be called upon.

"I still believe the U.S. government business — state, local and federal — is a very good spot to be, especially if we start to see a more broad-based recession in the U.S. market," he told analysts.

As a result, CGI continues to bid aggressively for contracts in the U.S., which accounts for more than 45 per cent of its overall revenues.

"Our strategy is to bid more to win more."

In Canada, which now accounts for just 30 per cent of revenues, CGI's strategy is to protect its base but also to go after new business in defence and intelligence as well as fraud detection.

CGI's earnings were expected to surge 27 per cent to 38 cents per share in the fourth quarter on $1.11 billion of revenues, according to analysts surveyed by Thomson Reuters.

Excluding the charge, net earnings were $104.8 million, or 39 cents per share, compared to $101.1 million or 36 cents a year earlier.

For the full year, its net earnings increased nearly 20 per cent to $435.1 million, or $1.58 per share.

Revenues grew to $4.32 billion, compared to $3.73 billion in 2010.

Foreign exchange fluctuations reduced revenues by $116 million. Excluding this impact, revenues would have been 3.1 per cent higher.

CGI's order backlog stood at $13.5 billion, up $140 million year over year.

Maher Yaghi of Desjardins Capital Markets said CGI had strong bookings in the fourth quarter but muted revenues, as he expected.

Bookings in the quarter were strong at $1.47 billion, ahead of his $1.2 billion estimate.

Global Infrastructure Services revenue of $172 million was down nearly 21 per cent.

Canadian revenue of $312 million decreased 0.6 per cent but operating income of $75 million excluding charges grew 16.5 per cent.

U.S. revenue of $493 million increased 15 per cent due to last year's acquisition of Stanley. Operating profits excluding charges was $52 million, roughly flat from a year ago.

Revenues in Europe were weaker than expected but the division had a $4 million operating profit excluding charges.

"CGI is a well managed company, but due to its geographical market presence in the U.S., Canada and Western Europe, it should continue to witness low single-digit revenue growth, below that of its major competitors," he wrote in a report, adding CGI doesn't warrant premium trading multiples.

Founded in 1976, CGI Group is one of the largest independent IT and business process services firms in the world..It has employees in Canada, the United States, Europe and Asia Pacific.

On the Toronto Stock Exchange, CGI's shares lost three cents to $20.12 in Thursday trading.

Note to readers: This is a corrected version. Profits were down, not up, as a previous version stated.