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  While EDS posted higher-than-expected quarterly profit, its consulting business, AT Kearney, posted an operating loss, as the company continues to struggle to integrate Kearney’s high-end advisory business into its IT and outsourcing operations.
Consulting-Times E-zine

A.T. Kearney posted an operating loss of $17 million on revenues of $193 million for the fourth quarter of 2004. Its full-year results are yet to be released. In 2003, when it was granted greater autonomy from EDS in an effort to win back clients, it lost $7 million on revenues of $846 million.

A.T. Kearney’s revenues have shrunk by about half since their peak in the late 90s.

Speaking to analysts EDS Chairman and CEO Michael Jordan said he expects A.T. Kearney to show “a little bit of a rebound this year, but not much. I think most of the high-value consulting companies are struggling a little bit.”

While many analysts view Kearney, or large parts of it, as prime candidate for sale, Jordan was adamant the consultancy was not for sale, calling published reports that EDS was shopping Kearney “completely erroneous.”

EDS reported net income of $53 million, or 10 cents per share for the fourth quarter, versus a restated loss of $337 million, or 70 cents per share, during the year-earlier period. The firm’s total revenues fell 4.7% to $5.25 billion from the fourth-quarter 2004.

Earnings excluding items such as restructuring charges were 25c a share, higher than analysts' average forecast of 23c, according to Reuters Estimates.

EDS is trying to expand outside its slow-growing core business of IT and Jordan said EDS would spend more than $1 billion this year on growth initiatives including an acquisition, expanding in low-cost countries and investing in technology.

Analysts expect that 2006 will be another difficult year for EDS, as it bids to keep its largest customer, General Motors Corp.

Investors were concerned by a decline in revenue, a big shortfall in new contract signings, and the company's unexpected weak earnings forecast for the first quarter and all of 2005.

New contract signings fell to $US3.8 billion from $US4 billion as some deals that had been expected to close in the fourth quarter were moved to the first quarter.

For its first quarter, EDS expects results between break-even and a profit of 5 cents a share on revenue of $US4.8 billion to $US5 billion.

For 2005, it sees a profit of 50c to 60c a share on revenue of $US20 billion to $US21 billion.

Analysts on average expected a first-quarter profit of 11c a share on revenue of $US4.98 billion, and for all of 2005 a profit of 73c a share on revenue of $US20.16 billion.
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