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Unisys shares plummet despite strong 3Q earnings

Unisys Corp. (NYSE: UIS) beat Street estimates by 7 cents a share in its third quarter, but its shares plunged 14 1/4, or 34 percent, to 28 Thursday because its total sales improved only 4 percent compared to the year-ago quarter.

Making matters worse, Unisys said its revenue growth will be "sluggish" in the fourth quarter though it will likely meet analysts' earnings estimates.

The computer services provider raked in $137 million, or 43 cents a share, on sales of $1.87 billion compared to $67 million, or 25 cents a share, on sales of $1.79 billion in the year-ago quarter.

"We delivered a sharp increase in earnings in the third quarter," said CEO Larry Weinbach in a prepared release. "A better-than-expected performance in our technology business, combined with margin improvement in our services business and continued tight expense control, helped us achieve an operating profit margin of 12.3 percent compared to 11 percent a year ago."

Last quarter, Unisys hurdled analysts' estimates by a nickel a share, earning $119.7 million, or 38 cents a share, on sales of $1.89 billion.

Without the negative effect of translating foreign currencies into U.S. dollars, sales would have grown 7 percent. By contrast, second-quarter revenue grew 12 percent, or 9 percent, including the effect of currency translation.

Most analysts were expecting sales growth of around 8 percent this quarter.

In the quarter, Unisys continued to retire preferred stock and debt in a bid to lighten a staggering load of debt payments and preferred dividend payouts left over from the 1986 merger of mainframe makers Burroughs and Sperry that formed Unisys. Over the past two years, the company has reduced long-term debt by $1.3 billion and slashed annual interest expense by more than $125 million. Long-term debt is now less than $1 billion.

"While we are making excellent progress in reducing costs, improving margins, and transforming our balance sheet, we clearly have work to do in accelerating growth at the top line," Weinbach said in the release.

Unisys reported good revenue growth in international markets in the third quarter, driven by very substantial gains in Japan and good gains in Europe, it said. But U.S. revenue was flat as strong gains in commercial business were offset by declines in the company's Federal government business.

The company said that its networking services business, particularly in its work for the U.S. government sector, is being hurt by intense competitive pricing pressures and unexpected delays in the start-up of certain contracts.

Unisys shares soared to a high of 49 11/16 in September after hitting a 52-week low of 20 15/16 last October.

Twelve of the 13 analysts following the stock maintain either a "buy" or "strong buy" recommendation.

Reuters contributed to this report.