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Electronic Data Systems significantly lowered losses for the first quarter of the year, signalling its turnaround strategy is on track, but its cautious forecast left many industry watchers lukewarm.
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| Consulting-Times E-zine
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EDS reduced losses to $12 million or 2 cents per share for the quarter from $1.4 billion or $3 per share a year ago. First-quarter revenue rose 4 per cent to $5.43 billion. Analysts were expecting a loss of 1 cent a share, which the company said it met on a pro forma basis.
The company signed $4bn in contracts in the quarter compared with $3bn in the year ago period. Most of this came from existing customers and renewals of contracts and include nearly $750 million in global business process outsourcing (BPO) agreements, up 32 percent on a sequential quarterly basis.
EDS posted an operating loss of $145 million, or 19 cents per share, in the quarter on the Navy Marine Corps Intranet program, in line with the revised full-year plan. The program also generated a cash outflow of $200 million, also within plan.
EDS' first quarter results also reflect an operating loss and asset write-down of $94 million related to the “other commercial contract” it has referred to in previous disclosures, including a net $37 million write-down of long term assets. EDS said it is negotiating with this client, which may result in termination of the contract, to which it has about $123 million in asset exposure up to date.
A.T. Kearney’ s revenue for the quarter was $215 million, down 6 percent versus the same period last year, while operating profit was $2 million, down 77 percent, reflecting continued market and pricing pressures according to EDS.
“We are pleased with the progress we made in the quarter,” said Chairman and CEO Mike Jordan. He said EDS has met financial commitments and has begun to generate sales momentum. “While there is work to be done, we have the financial resources, the service offerings and the commitment to aggressively compete in the market,” he added.
According to company CFO Bob Swan, various cost cutting initiatives are expected to generate $1billion in cost reductions in 2004.
In the current quarter, EDS expects revenues of $5.1-$5.2 billion and a loss of 6 cents to break-even on a per share basis. Full-year revenue is expected to be $20-$21 billion and the profit forecast is 20 to 40 cents earnings per share.
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