Obamacare contractor CGI profit misses, shares slide

Wed Jan 29, 2014 12:32pm EST
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By Alastair Sharp

TORONTO (Reuters) - Canadian computer services provider CGI Group Inc, the contractor behind the troubled Obamacare enrollment website, reported weaker-than-expected quarterly results on Wednesday, sending its shares to a four-month low.

The Montreal-based company said revenue and bookings - an indicator of future sales - were both strong in its first quarter despite losing the contract to manage the U.S. federal healthcare enrollment website it helped build.

But it also reported U.S. margin pressure and said cash from operations slipped to C$66 million ($59.19 million), down from C$224.5 million a year earlier. It blamed delays in collecting payments on some contracts as well as a hit from payments related to the integration of former British competitor Logica, which it bought more than a year ago to expand its European presence.

The company said it expects both of those problems to be temporary and predicted cash generation of around C$300 million per quarter in coming quarters. CGI said it generated more than C$800 million in cash from operations over the previous 12 months, excluding Logica integration costs.

It also said that revenue - which would have shrunk if not for advantageous currency rates - was pressured by a deliberate move away from low-margin business, and that costs in the United States rose as it pushed to hit year-end targets.

The stock was down 4 percent at C$33.81 on the Toronto Stock Exchange at midmorning on Wednesday after falling as low as C$32.71, its lowest point since early September.

"All things considered I see this is a buying opportunity and I'm still positive on the stock," said Thanos Moschopoulos, an analyst at BMO Capital Markets.

"But I'd say the quarter was mixed because I liked the bookings, I liked the revenue performance, I liked management's tone on the call, but it does seem that EPS (earnings per share) estimates for the Street are likely to come down a little."   Continued...