EDS exceeds Q1 expectations by a penny

IT services provider Electronic Data Systems (EDS) on Monday slightly exceeded analysts' expectations for its earnings per share in its first fiscal quarter, ended March 31, 2002, despite what it called a "challenging" environment in the economy and the IT services market.

EDS had net income of US$354 million, or $0.72 per diluted share, the company said, surpassing by one cent the consensus expectation from analysts polled by Thomson Financial/First Call. This compared with net income of $446 million, or $0.93 per diluted share, in last year's first fiscal quarter, said the company, based in Plano, Texas.

The company's first-quarter revenue rose 7 percent from a year earlier, to $5.34 billion, much lower than EDS' expectation of 13 percent revenue growth.

Although the company posted lower revenue than expected, it outpaced revenue growth in the IT services market, which dipped to "the low single digits" in the quarter, EDS Chairman and Chief Executive Officer (CEO) Dick Brown said during a conference call Monday.

"EDS continues to outpace the market and our principal competitors. In short, we continue to take market share. The fundamentals of our business and the IT services industry remain strong. That said, the overall economy and particularly corporate capital spending were soft the last two quarters, weaker frankly than we were projecting going into this year," he said.

EDS said its net income in last year's first fiscal quarter included several one-time gains and the cumulative effect of a changed accounting practice. Excluding those gains, net income in last year's first fiscal quarter was $301 million, or $0.63 per share.

Financial analysts from Salomon Smith Barney Inc. were pleased with the company's results overall, but felt concerned about the rate of revenue growth.

"In our view, EDS reported a decent first quarter 2002 ..., given the persistent slowdown in IT spending that has impacted the entire industry," Smith Barney analysts wrote in a note after the earnings announcement.

Still, Smith Barney was expecting revenue growth of 14.7 percent to $5.7 billion.

"Clearly, we were not anticipating the revenues to be down as much as they were. At most, we expected a $50-70 million shortfall this quarter," the note reads.

Contract signings came in at $7.2 billion, compared with $7.5 billion in the same period last year. The contracts signed in the first fiscal quarter of 2002 included the extension and expansion of an outsourcing contract with Storage Technology Corp. (StorageTek) for 10 more years at a value of $300 million and a 10 year, $250 million contract with Australia's Bank of Queensland.

This quarter, EDS also announced a reorganization to improve its operations and position in the services market.

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More about Bank of QLDEDS AustraliaElectronic Data SystemsFirst CallSalomon Smith BarneyStorageTekThomson Financial

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