DXC Technology’s Failed Sale Bid and Leadership Changes Lead to Another Restructuring Plan, Lower Revenue Forecast, and Stock Decline

DXC Technology’s shares fell 18% on Friday after the IT services provider unveiled a new restructuring plan and predicted lower revenue and profit for fiscal 2025 than anticipated. This move follows a failed sale bid last year and the departure of top executives, as well as a slowdown caused by high interest rates, which hindered the company’s efforts to shift away from its declining traditional IT outsourcing services towards cloud-based solutions.

Analysts at RBC Capital Markets questioned DXC’s ability to recover, noting that despite multiple leadership changes over the years, the business still faces challenges. The company’s new management is now embarking on yet another restructuring effort to simplify operations, indicating that fiscal year 2025 will be another year of transition. The restructuring is expected to incur an additional $250 million in costs in fiscal 2025 and focus on reducing excess capacity in the legacy business.

DXC’s CFO Robert Del Bene disclosed during a post-earnings call that the restructuring would affect free cash flow, with the company projecting around $400 million for fiscal 2025, significantly lower than the $756 million reported in FY24. This news led J.P.Morgan analysts to have low expectations for the company’s stock performance, noting that investors may not be receptive to another restructuring that impacts cash flow and halts share repurchases.

Overall, DXC has seen its shares decline by 13% in 2024 and a total of 30% over the past two years. On Friday, the company was set to lose over $635 million in market value. Additionally, data from LSEG indicated that at least nine of the 14 analysts covering the stock had revised their target prices downwards due to the recent developments.