DXC Technology NYSE: DXC reported fourth-quarter revenue below its expectations while profitability and free cash flow exceeded guidance, as management said weaker discretionary technology spending and execution issues weighed on results.
On the company’s fourth-quarter and fiscal 2026 earnings call, President and CEO Raul Fernandez said DXC delivered “a strong quarter on profitability,” with adjusted EBIT margin and free cash flow ahead of guidance. However, revenue came in at just over $3.1 billion, missing the company’s organic revenue guide by about $75 million, or roughly two percentage points.
“That’s not just a pipeline and demand issue, it’s execution, and we continue to work on both,” Fernandez said. He said the company is focusing on tighter in-quarter conversion and “smaller, faster start opportunities” that can be sold and delivered within the same period.
Fourth-quarter revenue declined as project work weakened
CFO Rob Del Bene said total fourth-quarter revenue was $3.1 billion, down 6.6% year over year on an organic basis. The shortfall reflected “increased weakening of discretionary spending on short-term services projects,” particularly in Global Infrastructure Services, or GIS, where revenue was affected in both the U.S. and Europe.
Adjusted EBIT margin was 7.6%, slightly above the company’s guidance range and up 30 basis points from the prior year. Del Bene attributed the margin performance to spending management and non-recurring items in the quarter, partly offset by lower revenue. Non-GAAP earnings per share were $0.77, at the high end of guidance.
Bookings declined about 14% from a year earlier, and the quarterly book-to-bill ratio was 1.07. Del Bene said the decline reflected a difficult comparison with the prior-year quarter, which included large renewals, as well as lower short-term project-based services in both GIS and Consulting and Engineering Services, or CES.
- CES: Revenue declined 3.9% year over year and represented about 40% of total revenue. Enterprise applications grew in the quarter, while custom applications weakened due to short-term discretionary project delays.
- GIS: Revenue fell 10.6% year over year and represented about 50% of total revenue. Del Bene said project-based services pressure worsened, and weakness extended to resale-based discretionary projects for the first time this fiscal year.
- Insurance: Revenue grew 4% year over year, driven by high-teens growth in the software business. DXC cited customer migrations to its cloud-based Assure platform and adoption of AI-enabled Smart Apps.
Full-year results show revenue declines, stronger free cash flow
For fiscal 2026, DXC reported total revenue of $12.6 billion, down 4.8% year over year. CES revenue declined 3.8%, GIS revenue declined 7.2% and insurance revenue increased 3.6%.
Del Bene said the full-year performance reflected the same themes discussed throughout the year, including macro uncertainty and pressure on discretionary project-based spending. Full-year bookings declined about 6%, with a book-to-bill ratio slightly below 1. CES posted a full-year book-to-bill ratio of 1.1, while GIS was 0.94.
Adjusted EBIT margin for the year declined 20 basis points to 7.7%, which Del Bene said was largely due to investments in offering development, sales and marketing. Non-GAAP diluted EPS was $3.23, down 6% from the prior year.
Free cash flow totaled $713 million for fiscal 2026, up from $687 million the prior year and ahead of DXC’s expectations. The company repurchased $250 million of shares during the year, nearly 18 million shares, representing almost 10% of shares outstanding. Del Bene also said DXC reduced debt through $808 million of cash payments since the start of fiscal 2025, including bond prepayments and capital lease reductions.
DXC outlines fiscal 2027 guidance
For fiscal 2027, DXC expects total organic revenue to decline 3% to 5% year over year, with the pace of decline improving by three to four percentage points in the second half of the year. Del Bene said the guidance assumes no change in the current macro environment.
In GIS, DXC expects a mid-single-digit revenue decline for the year, with improvement in the second half as headwinds from prior contract losses ease. In CES, revenue is expected to decline in the mid-single-digit range throughout the year, reflecting continued project-based services pressure. In insurance, DXC expects growth in line with fiscal 2026, with improvement through the year driven by expected new customer contracts and AI-based software solutions.
The company expects fiscal 2027 adjusted EBIT margin of 6% to 7%, non-GAAP diluted EPS of $2.40 to $2.90 and free cash flow of about $600 million. For the first quarter, DXC expects total organic revenue to decline 6.5% to 7.5%, adjusted EBIT margin of about 5% and non-GAAP diluted EPS of about $0.40.
Asked about the guidance, Del Bene said the midpoint assumes the current macro environment continues. If macro conditions improve, he said, results could trend toward the high end of the range; if they deteriorate, toward the low end. Fernandez added that DXC took a “very, very conservative approach” to the expected fiscal 2027 revenue contribution from new AI-related offerings.
AI strategy remains central to management’s plan
Fernandez said DXC is working to transform itself into an “AI-led company” while expanding margins and free cash flow. He described the company’s “Customer Zero” approach, in which DXC uses itself as the proving ground for AI tools before offering them to clients.
According to Fernandez, every DXC employee now has access to enterprise-grade AI tools, an internal knowledge hub, AI playgrounds and internal agents designed to support responsible AI use. He cited an internal four-week AI challenge in which more than 100 teams built nearly 1,300 working AI agents.
Fernandez also previewed two AI-related offerings: CoreIgnite, which he said helps banks modernize capabilities such as buy now, pay later, stablecoin and remittance without changing core banking systems, and OASIS, an agentic orchestration platform for managed services. He said OASIS launched with 10 customers on April 28 and contributed to a new logo win with a major European insurer.
In response to analyst questions, Fernandez said AI is both an opportunity and a potential threat, but he emphasized that about 80% of DXC’s revenue is already tied to outcome-based categories, including fixed-price and volumetric pricing. He said that gives the company an opportunity to use AI to improve efficiency, throughput and margin across existing contracts.
Management says win rates and execution remain areas of focus
Fernandez said DXC advanced to the final stages of 13 large opportunities in the quarter, representing more than $2 billion of potential total contract value. On a dollar-weighted basis, DXC won 32%, lost 40% and about 28% remained outstanding. He said he expected a higher win rate.
Asked where DXC fell short, Fernandez said pricing was not the issue in recent large-deal losses. Instead, he said the company sometimes failed to demonstrate the right capabilities at the technology, industry or company-specific level. He said DXC is applying lessons from both wins and losses to improve solutioning and positioning.
“Once you understand precisely where you’re falling short, you can fix it,” Fernandez said. “That’s exactly what we’re doing now.”
About DXC Technology NYSE: DXC
DXC Technology, headquartered in Tysons Corner, Virginia, is a global leader in IT services and solutions. The company was formed in 2017 through the merger of Computer Sciences Corporation (CSC) and the Enterprise Services business of Hewlett Packard Enterprise, combining decades of experience in consulting, systems integration and managed services. Since its inception, DXC has focused on helping clients modernize IT environments and drive digital transformation across their organizations.
DXC Technology's core service offerings encompass cloud and platform services, applications and analytics, security, and workplace and mobility solutions.
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