EDS triples second quarter income

Electronic Data Systems (EDS) has tripled its net income and exceeded revenue expectations in its second quarter of 2004.

Electronic Data Systems (EDS) has tripled its net income and exceeded revenue expectations in its second quarter of 2004.

EDS posted net income of $270m (£148m) up from net income of $88m in last year's second quarter. Excluding certain one-time items, such as a gains related to the company's divestiture of its UGS PLM Solutions unit, EDS posted a net loss of $16m.

EDS' quarterly revenue grew 4% to $5.24bn, above consensus expectations of $5.17bn, thanks, in part, by solid execution in the US and Europe and in vertical sectors such as communications, government and retail.

Excluding the impact of currency fluctuations, acquisitions and divestitures, revenue remained flat. Revenue figures for both periods exclude UGS PLM Solutions.

The US Navy/Marine Corps Intranet (N/MCI) contract was particularly problematic and generated an operating loss of $171m.

EDS won the N/MCI contract in October 2000 and it was valued at $4.1bn over five years with an additional three-year option that could put its value at around $6.9bn. It was extended in 2002 to seven years with a three-year option and its value rose to $8.8bn. The project has been plagued by delays and has drained a lot of cash from EDS.

Uncertainty related to aspects of N/MCI prompted EDS to narrow its full-year earnings forecast and to lower its free cash flow expectation to between $200m and $300m, from a previous range of $300m to $500m. Revenue expectations remained unchanged to between $20bn and $21bn.

"EDS remains a tale of two cities," said chairman and chief executive officer Michael Jordan.

Changes implemented in the past 15 months or so by him and his management team have spurred sales, leading EDS to sign $4bn in contract in the quarter, up 25%, he said.

However, he added that problem contracts predating his arrival in March 2003 continue to hobble EDS.

Juan Carlos Perez writes for IDG News Service

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