Outsourcing giant EDS surprised with strong first-quarter profit growth thanks to early contract milestones and cost delays, but revenue growth was sluggish at 3% year-over-year.
The company said the market was softer, particularly in terms of the number of large deals being signed. EDS booked only $3.4bn in new deal over the quarter, leaving a lot of slack to pick up during the rest of the year if the company wants to hit its target of $23bn in signings for 2007.
EDS inked seven contracts worth more than $100m in Q1, but it still had to sign more deals of smaller sizes to get to this $3.4bn mark, according to President and COO Ron Rittenmeyer
Revenue for the quarter crept up to $5.22bn from $5.08bn, and just off Wall Street’s estimate of $5.26bn, according to analysts polled by Thomson Financial. Revenue highlights include $1.5bn in applications sales, up 9%.
Applications services has been a recent focus point for the company, no doubt helped by its purchase of Indian offshore vendor Mphasis as well as smaller applications shop such as SAP specialist GEMS. While EDS’ mainstay business is its infrastructure outsourcing, contributing $2.87bn, or 55% of revenue in Q1, applications work is gaining ground and accounted for 34% of new contract signing in the quarter.
On the bottom line, EDS posted net income of $164m, or $0.31 per share, up from $24m last year. Analysts were looking for only $0.21, but they didn’t include the $0.07 of favorable earnings items–early payments and severance cost delays–EDS picked up during the quarter.
But the good earnings didn’t increase EDS’ full-year EPS outlook, which stands at $1.55 to $1.60. Revenue guidance for the year is unchanged, between $22bn and $22.5bn.
The company’s BPO business hasn’t really budged that much, contributing 15% of revenue. The company said its health care BPO practice is solid, but that in general BPO is an area where it is looking for acquisitions to drive more growth.