EDS Says Earnings Will Fall Short

EDS now expects to earn 12 cents to 15 cents per share instead of 74 cents per share in the quarter ending this month.

In the fourth quarter, it forecasts profit of 57 cents to 59 cents per share instead of the 88 cents per share expectation of analysts.

Chairman and chief executive Richard H. Brown blamed EDS' problems largely on a downturn in discretionary technology spending by corporations, and he predicted weakness in the computer-services industry will continue into next year.

Brown also apologized for bullish remarks to analysts last month.

"Frankly, we were more optimistic than we should have been relative to our ability to fight our way through a tough economy," Brown said during a conference call with analysts. "We expected our clients' discretionary spending to tighten; not virtually stop."

In trading Wednesday before the announcement, EDS shares fell $1.30 to $36.46. In after-hours trading, the stock tumbled another 33 percent to $24.39.

Earlier in the day, the stock apparently was dragged down first by reports that the company has resumed negotiations to buy Procter and Gamble Co.'s back-office operations after dropping out of the bidding in July, when EDS said the deal didn't make financial sense.

EDS officials declined Wednesday to confirm or deny resuming talks with P&G.

Through the close of regular trading Wednesday, EDS shares had fallen 49 percent since early December. Including the after-hours trading, the decline was 66 percent.

EDS said third-quarter revenue would be $5.3 billion to $5.5 billion--a decline of 2 percent to 5 percent from last year, instead of the company's previously projected 4 percent to 6 percent increase.

It said fourth fourth-quarter sales also would miss analysts expectations.

The company now expects to earn $2.05 per share to $2.10 per share for all of 2002. Analysts surveyed by Thomson First Call had expected $2.97 per share.

EDS, which manages corporate and government computer systems, said third-quarter earnings would fall 25 cents to 28 cents per share because of weakness in high-margin discretionary spending; 14 cents per share because it wrote down the value of airplane leases to US Airways, a major client that has filed for bankruptcy protection; another 14 cents per share due to poor performance of some contracts, mostly in Europe; and 8 cents per share by its exit from the subscription-fulfillment business.

The company said its extra expenses related to the bankruptcy of another major customer, WorldCom, would not be as great as feared, 2 cents per share instead of 4 cents per share in the third quarter.

For the full year, EDS said cash flow would range from $200 million to $400 million instead of the $600 million to $800 million it had forecast.

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