No lifting of load in EDS earnings

The computer services company recovers from a first-quarter loss but says it still has work to do to overcome the spending slump and other difficulties.

Tech Industry
Electronic Data Systems posted lower quarterly net income, but managed to meet analysts' targets for the second quarter.

The Plano, Texas-based computer services company recorded net income of $138 million, or 28 cents per share in the second quarter, which ended June 30. That compares with $316 million, or 64 cents per share, in the same period a year ago.

Excluding asset write-downs and a restructuring charge for executive severance, second-quarter net income was $167 million, or 34 cents per share--matching analysts' average estimate, according to research firm First Call.

EDS posted revenue for the quarter of $5.52 billion, better than analysts' average estimate of $5.39 billion.

The earnings mark an improvement on the first quarter, when the company recorded a net loss of $126 million, or 26 cents per share. On the other hand, it signed just $3.4 billion in contracts in the second quarter, compared with $6.2 billion a year ago.

"While we met our financial commitments in the quarter, the results highlight continuing issues in our sales and operating efficiency," CEO Mike Jordan said in a statement. "We are taking aggressive steps through our ongoing transformational process to improve our cost structure, productivity and competitiveness. We also fortified our balance sheet with a significant infusion of capital. Now we must translate our improved competitive position into greater marketplace success."

EDS has been trying to right itself after nearly a year of difficulties, not least of which has been a sluggish technology-spending climate. It has also weathered a drastic earnings shortfall, a U.S. Securities and Exchange Commission probe and a management shake-up.

In March, EDS replaced CEO Dick Brown with Jordan, the former chief of CBS.

"The company laid out broad plans for its turnaround during its June 18 analyst meeting," Merrill Lynch analyst Jennifer Dugan wrote in a note prior to EDS' earnings announcement. "This quarter will mark management's first chance to prove that it has its financial house under control and lay the groundwork for an eventual recovery."

Dugan had expected EDS to report 30 cents in operating earnings per share and $5.3 billion in revenue.

EDS hopes to improve its bottom line by focusing on the growing technology outsourcing market. Part of its strategy is to boost its presence in countries with lower labor costs. Last month, it said it would continue to invest in its "Best Shore" initiative, which involves locating software application-development and call-center support resources in countries such as Egypt, New Zealand, Canada, Brazil, Ireland and India. EDS recently opened a 500-seat customer contact center in Mumbai, India.

In the second quarter, EDS said it achieved "modest growth" in information technology and business process outsourcing revenue.

EDS competes for outsourcing deals with the likes of IBM, Hewlett-Packard and Accenture.

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