PLANO, Texas (AFX) - Electronic Data Systems Corp., which runs other companies' computers, said Tuesday its second-quarter profit rose fourfold and contract signings, an indicator of future revenue, doubled.
However, the company issued a third-quarter earnings forecast that was below analysts' expectations and said it would slash 3,000 to 4,000 jobs in the second half of the year while hiring more people in India and China.
EDS said it earned $104 million or 20 cents per share in the quarter ended June 30, compared to $26 million or 5 cents per share a year earlier. EDS said it would have earned $107 million in the recent quarter excluding losses from discontinued operations and a one-time gain.
Analysts were expecting 16 cents per share, according to a survey by Thomson Financial.
Revenue was $5.19 billion, up from $5.00 billion in the same period last year. Analysts expected $5.14 billion.
Plano-based EDS signed $5.4 billion in contracts in the second quarter, up from $2.6 billion a year ago, including a seven-year, $1.7 billion contract with Kraft Foods Inc. and a six-year, $700 million contract with Bank of America.
EDS said it has more than $15 billion in signings in the first half of the year, its best pace since 2001.
Chairman and Chief Executive Michael Jordan said the company also was helped by better results on some of its largest accounts, including multi-billion-dollar deals to run networks for the U.S. Navy and the U.K. Ministry of Defense.
Jordan said profit margins would increase as the company improves productivity and shifts more work to low-cost foreign countries.
The shift in work, plus automation, will lead to 3,000 to 4,000 job cuts in the second half, up from a cut of 1,000 in the first six months of the year. The company had nearly 120,000 employees on June 30.
Jordan and other executives said job-trimming will become a standard practice, partly because EDS is trying to shift from the highly competitive and lower-margin business of running computer systems into faster-growing areas, such as managing back-office operations for other companies.
'We will always have some form of restructuring cost because anybody in business has to at least try to get 3 (percent) to 4 percent productivity (gains) every year,' Jordan said. 'And when people are your major cost, then it's going to impact people.'
While cutting jobs in Europe and the United States, EDS officials said they plan to add up to 5,000 jobs in India and nearly 1,000 in China this year. EDS bought a majority stake in MphasiS BFL Ltd. and said last month it would combine the Indian outsourcing company with its own local subsidiary.
EDS has about 16,000 employees in low-cost countries, including Eastern Europe and Latin America, and plans to have 45,000 in two years, including 12,000 MphasiS workers.
EDS predicted it would earn 16 cents to 21 cents per share in the third quarter, excluding one-time gains and losses, on revenue of $5.3 billion to $5.5 billion. Analysts were expecting the company to earn 29 cents per share on $5.01 billion in sales.
The company said severance for eliminating up to 5,000 jobs would cost about 15 cents per share in the second half of the year and cause full-year profit to be near the low end of a range between 83 and 93 cents per share. Analysts are expecting 89 cents per share.
The company also said it expects revenue for all of 2006 of between $21 billion and $21.5 billion, an increase of $1 billion over its prior guidance, and contract signings of $23 billion to $25 billion.
Rod Bourgeois, an analyst with Sanford C. Bernstein & Co., said EDS' revenue and contract signings looked strong but severance costs for the rest of the year were higher than expected.
'The combination of stronger revenues and increased restructuring activity in 2006 could help 2007,' although executives didn't sound all that bullish about next year, Bourgeois said.
Cindy Shaw, an analyst with Moors & Cabot, said EDS was 'continuing along a somewhat bumpy path,' but that the revenue and bookings growth plus job eliminations would position it better for next year.
Shares of EDS fell 47 cents, or 2 percent, to close at $23.43 on the New York Stock Exchange, where they have ranged from $19.65 to $28.09 over the past year.
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