EDS Earnings Up In 2QEDS Earnings Up In 2Q

IT services provider EDS (EDS-NYSE) continues to use its strong outsourcing business to increase revenue and earnings when companies are holding off on spending for consulting and systems-integration services. EDS Wednesday reported earnings of $300 million, or 62 cents per share, on $5.1 billion in revenue for the second quarter, ended June 30.

Although the IT spending landscape has changed drastically within the past 12 months, EDS managed to outperform its second quarter of 2000. Earnings increased 18% from last year's $254 million and revenue rose about 10% above the $4.6 billion posted for the second quarter a year ago. Customer wins for the quarter amounted to $7 billion, compared with $6.1 billion for the same quarter a year ago, and included contracts for $469 million from FranklinCovey Co., $390 million from the U.K.'s Abbey National, $271 million from the Bank of Canada, and $105 million from Sweden-based SKF, a supplier of bearings and seals.

Outsourcing continues to drive growth in the IT services industry, and EDS's Information Solutions business is no exception, seeing 20% growth from the second quarter of 2000. But revenue for the service provider's A.T. Kearney business consulting unit decreased 1% from the second quarter of 2000. Myrna Vance, EDS's managing director of investor relations, says that while companies are finding they can put off discretionary spending on big-picture business strategy consulting, A.T. Kearney's business should pick up in the second half of the year as clients continue searching for ways to run their businesses more efficiently.

EDS doesn't expect revenue to increase anytime soon from General Motors Corp., which represents 15% of EDS's business and is its largest customer. Vance says EDS had been expecting GM revenue to be flat for the quarter, but it's actually dropped a few percentage points due to the car company's cutbacks in EDS-managed areas like call-center operations and benefits administration. EDS chairman and CEO Dick Brown says GM's revenue is down 3% from the second quarter of 2000. "Understandably, GM is making near-term cuts in discretionary spending and plans to continue cutting, but significant long-term opportunities for growth remain," Brown said during a conference call.

EDS's acquisitions of German IT service provider Systematics AG and Sabre Inc.'s IT outsourcing business were completed earlier this month and are expected to generate a combined $300 million per quarter, beginning with the third quarter. The service provider is also in the process of acquiring Structural Dynamics Research Corp. in a move that's expected to contribute another $150 million during the fourth quarter of this year. Altogether, EDS will pay about $2 billion for these three acquisitions.