Electronic Data Systems Corp. (EDS) ended its 2002 third fiscal quarter with earnings and revenue that exceeded revised expectations but fell way below original forecasts for the quarter, the company announced Wednesday.
EDS also said it will reduce its workforce by 3 percent to 4 percent through layoffs and attrition in the coming quarters, as it struggles with sagging sales. The company, based in Plano, Texas, currently has 138,000 employees worldwide, so a 4 percent reduction would mean zapping about 5,520 jobs.
The first wave of cuts will happen before the end of this year, when EDS, the world's second largest provider of IT services, expects to eliminate between 800 and 1,000 jobs.
The company closed the quarter, which ended Sept. 30, with net income of US$86 million, or $0.18 per share. The company had originally expected to earn $0.74 per share, but it revised that figure down dramatically to a range of $0.12 to $0.15 in mid-September, citing slowing sales and other factors.
Revenue for the quarter came in at $5.41 billion, within the revised range but below original expectations of between $5.8 billion and $5.9 billion.
The revised consensus expectation from 24 analysts polled by Thomson Financial/First Call was for earnings per share of $0.12 and revenue of $5.3 billion. In the third quarter of 2001, EDS reported net income of $212 million, or $0.44 per share, and revenue of $5.56 billion.
Company officials said they were deeply disappointed with this year's the third quarter results.
"There's no surgarcoating these results. They're the by-product of a very difficult market and of our own decisions," said Dick Brown, the company's chairman and chief executive officer, during a conference call held Wednesday afternoon to discuss the results.
EDS blamed the quarter's shortfall on weak new sales and slow growth on existing contracts due to a reduction in clients' discretionary spending, particularly in Europe. It also cited increased internal spending to bolster its sales team; asset writedowns related to the US Airways Group Inc. bankruptcy in August, and asset writedowns in other lines of business, among other things.
In addition to the job cuts, EDS will also reduce costs by cutting overhead expenses by $75 million next year and divesting itself of what it called several "non-core, non-strategic assets," which should yield over $500 million in cash over the coming 6 to 8 months. It also plans to shift at least 1,500 positions from application development teams and client contact centers to low-cost "solutions" centers in 2003. The cost-cutting measures will not affect the quality of services, Brown insisted.
EDS signed $3 billion worth of contracts, down from $6.8 billion in the same quarter last year.
EDS sees no recovery in discretionary spending until at least the second half of 2003, Brown said. The company will go after growing markets, such as hosting services, desktop services and technology consulting, Brown added.
EDS' earnings and revenue warning in mid-September sent its stock plunging, and prompted shareholder lawsuits, downgrades from financial analysts and a probe from the U.S. Securities and Exchange Commission (SEC). It also put the skids on a multibillion dollar outsourcing contract EDS was about to win from Procter & Gamble Co.
EDS' (EDS) shares on the New York Stock Exchange ended Wednesday trade at $13.75, down 1.36 percent. The company released its results after the markets closed. The stock's 52-week high is $72.45.