Services giant EDS faltered in its second quarter, with lower than expected profits that chief executive Les Alberthal called "not only disappointing but unacceptable".
The quarter was hit by a $265 million charge for restructuring and lay-offs and forced EDS to cut its earnings estimate for the full year from $2.30-$2.35 per share to $1.90-$2.00 per share. In May the company issued a profit warning for Q2 but insisted it would meet Wall Street forecasts for the full year.
With the charge, net income was $22.9 million. Without it, EDS earned $192.4 million, or 39 cents a share, still below analyst forecasts of 45 cents. A year ago, it made a loss of $326.5 million following a $900 million charge related to the GM spin-off, but without that its operating profit was $246.6 million. Q2 revenues rose five per cent to $3.68 billion.
The problems may lie with an over-cautious consolidation programme, analysts believe, and Alberthal said he is now considering more dramatic changes in working methods, though he would not detail any plans. Since its spin-off from General Motors last year, the services operation has cut 3,000 jobs to make savings of $250 million a year.
But EDS did say that new contracts had more than doubled in value since the same time last year, reaching $3.3 billion, and two massive deals are in the pipeline that could boost the fourth quarter. On Friday EDS won a $4 billion outsourcing deal with telco Bellsouth and it is bidding against Computer Sciences for a $4.5 billion services deal with Commonwealth Bank of Australia, to be awarded next week.
EDS also announced its largest acquisition since it bought consultancy AT Kearney two years ago. It has paid $67 million, and taken on $210 million in debt, for the 52 per cent it did not already own in marketing services company Neodata.
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