EDS Earnings Plunge in 2Q

By Paula Musich  |  Posted 2003-07-23 Print this article Print

Weak quarter attributed in part to lower revenues from the outsourcer's contract with GM, which has continually dropped over the last several quarters.

EDS today posted a decline in net income of $138 million for its second quarter, compared to $316 million in the same quarter last year. Earnings per share dropped to 28 cents from 64 cents in the same quarter last year. Total revenue for the quarter saw a two percent rise to $5.52 billion.
"While we met our financial commitments in the quarter, the results highlight continuing issues in our sales and operating efficiency," said Mike Jordan, EDS Chairman and CEO, in a statement released earlier today.
The weak quarter was attributed in part to lower revenues from the Plano, Texas, outsourcers contract with General Motors, which has continually dropped over the last several quarters as the automaker reduces its discretionary spending. Non GM revenues for the quarter increased 5 percent to $4.97 billion, while GM revenues dropped 16 percent to $555 million. During the quarter EDS signed $3.4 billion in new contracts, compared to $6.2 billion in the second quarter of 2002. EDS attributed its revenue and earnings weakness to a tight IT spending environment, although its earnings also took a hit from under-performing contracts and the impact of contracts that it renegotiated with a handful of major clients. Across its business units, EDS saw revenues in its Operations Solutions unit rise three percent to $3.69 billion, a decrease in Solutions Consulting revenues of 13 percent at $1.31 billion, a 10 percent decrease in its PLM Solutions unit to $205 million, and a decrease of 27 percent in revenues generated by its high end A.T. Kearney management consulting unit at $212 million. As part of its plan to refocus the company on the technology outsourcing services market—a plan announced last month—EDS said that its new organizational structure will consist of three primary operations, including Global Sales, Service Delivery and Portfolio Management. Despite the weak IT spending environment, EDS did not change its earnings forecast for the second half of the year. It still expects to generate earnings per share of between 70 to 80 cents on revenues of about $11 billion.

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