EDS holds profit forecast After revealing the $2.24 billion effect of an accounting change, Electronic Data Systems [EDS] revealed third quarter results and set fourth quarter guidance.
At the same time, the services giant revealed further job cuts and implied that its new business was still less not as strong as it could be in certain areas.
Sales at the services giant were $5.2 billion in the quarter ending September 30, a slip of 1.8% on the previous year. Operating income was down from $270 million last year to $76 million, while net loss was $600,000, compared to a profit of $86 million a year ago. This equated to break even on a per share basis.
Interpreting the company’s results has been complicated by its retroactive adoption of EITF 00-21, an accounting rule change covering contracts with multiple deliverables.
It revealed the extent to which the change will affect its results – a $2.24 billion cumulative non-cash charge against its first quarter results. The application of the rule also means dilution of first half earnings by 52% and second half earnings by 75%.
It said that on a pro forma basis, third quarter earnings would have been $0.05 per share, and discounting the effect of EITF 00-21, the figure would have been $0.32 per share.
The company declared fourth quarter earnings should also be in line with expectations, when presented on a pro forma basis and before the impact of EITF 00-21. It expected revenues of $5.4 to $5.5 billion. Its forecast earnings per share of $0.10 to $0.14 is consistent with its earlier forecasts, when adjusted for the impact of EITF 00-21.
Pricing pressure in the firm’s IT Outsourcing Business, its biggest segment, was at 56% of its revenue, with the market experiencing a downturn. At the same time, in the third quarter the business was up 11% on the previous year.
Applications management, worth 20% of revenue, was down 8%, and pricing pressures continued here with development spending flat. However, it claims the omens are looking good when it comes to BPO spending, which accounts for a 13% share of revenue, and which was up 4%. IT Consulting was worth 3% of revenue and was down 26%.
Overall, the company signed $3.4 billion of new business in the quarter, versus $3 billion a year ago. On a year-to-date basis, signings stand at $9.7 billion compared to $9.7 billion a year ago. It feels that although contract signings continue to improve, the quantity was still problematic. Things, however, were looking up and the company was competing more effectively.
EDS has raised $2 billion from the capital markets and asset sales, renegotiated its revolving credit agreement and increased the size of its credit facility for its troublesome Navy Marine Corp Intranet contract.
That said, the company is still looking to cut costs, and said it planned to cut its workforce by 5,200 by year’s end. This includes 2,700 previously announced cuts. EDS expects to generate savings of $330 million to $360 million through its restructuring, up $100 million on its earlier target.
This article was based on material originally published by ComputerWire.