EDS Reports 1Q Earnings Dip; Looks To Strong Third Quarter

EDS

For the quarter ended March 31, 2001, EDS reported income of $354 million, or 72 cents per share, on sales of $5.34 billion. That compares with income of $446 million, or 93 cents per share, on sales of $4.98 billion for the same period last year.

Results for the year-ago period would have been $301 million, or 63 cents per share, according to Plano-based EDS, by factoring in the exclusion of a one-time $178 million gain on an e-commerce investment and $33 million in goodwill amortization.

"The overall economy was soft, weaker than we were projecting going into this year," said EDS CEO Dick Brown. "At the same time, EDS continues to outpace the market and our principal competitors. In short, we continue to take market share."

EDS' earnings barely beat Wall Street's consensus estimate of 71 cents per share, according to First Call/Thomson Financial. Shares of EDS were trading down about 3.5 percent following the earnings release, from a Friday, April 19, close price of $53.20 per share to a Monday close of $51.30 per share.

Brown said while client and new business investment decisions were postponed during the first quarter, they were not canceled.

"Our success has come a percentage point at a time," said Brown. "As the industry begins ramping up sometime in the third quarter we will continue to grow faster than the market."

He also noted the majority of unbilled revenue remains in government contracts, but said there's "virtually no collection risk." EDS' operating margin for the quarter grew to 11.3 percent, compared with 8.9 percent for the same quarter last year. The company also reported operating cash flow of $221 million for the quarter, with estimates of a positive free cash flow of $700 million to $900 million for the year.

Last week, EDS realigned its business units with the goal of leveraging traditional IT outsourcing into growing markets for business-process outsourcing and IT consulting. The shift includes moves to combine elements of EDS' Information Solutions, E Solutions and Business Process Management lines of business into two new organizations: Operations Solutions and Solutions Consulting.

"We've turned our bright lights on business-process outsourcing and we are taking square aim at the opportunities in solutions consulting," said Brown.

EDS expects second-quarter earnings of about 78 cents per share.