CACI, the bigger of the two defense services firms, posted a drop in quarterly net income to $18.4m from $21.4m last year, which was expected after an earlier warning in January of tighter defense spending. EPS of $0.59 was in line with analysts, according to Reuters Estimates. Operating margins for the quarter fell to 7.3% from 8.5% last year.

Total revenue, at $473m, was up 9% from last year and slightly ahead of Wall Street’s forecast of $471m, and CACI’s bookings of $896m were impressive

But CACI continues to revise its outlook downward, and on Tuesday it said EPS for the full fiscal year should come in between $2.44 and $2.53 on revenue of $1.88bn to $1.91bn. This is on the low end of its January guidance, which was for EPS between $2.45 and $2.65 on revenue of $1.88bn to $1.95bn.

CACI cited questions surrounding the passage of the government’s FY07 supplemental defense spending bill; and as a result, the Pentagon is already looking to lower its spending, said Paul Cofoni, president of CACI’s US operations.

President Bush on Tuesday vetoed a supplemental $124bn war spending bill since it contained provisions for withdrawing troops from Iraq. The House of Representatives failed to muster the two-thirds majority needed to override the veto.

While we anticipate that a supplemental for FY07 will ultimately be signed into law, we expect uncertainty surrounding the level of DoD funding will continue into our next fiscal year as the FY08 defense appropriations and supplemental are considered by Congress. As a result, we have less visibility into our next fiscal year than we normally would have at this point in the year, Cofoni said in a statement.

SRA also dropped its FY07 forecast and had unimpressive, although expected, news on the earnings front. Net income inched up only slightly to $15m from $14.8m last year. EPS was flat at $0.26, a penny ahead of estimates.

Revenue for Q3 increased 7% to $317.6m, just above Wall Street’s call for $317.3m. Bookings for the quarter were weak at $179m, although this figure doesn’t include several indefinite delivery, indefinite quantity SRA won.

The company, which already lowered its annual guidance way down back in January to EPS of $1.06 to $1.08 on revenue between $1.26bn and $1.29, now expects EPS between $1.06 and $1.07 on sales of $1.25bn to $1.27bn.

Both companies reported after market close on Tuesday, but it appears investors were braced for the guidance news. CACI shares were unchanged in after-hours trading at $46.90, and SRA shares bumped up 2% to $24.71.