EDS's Profit Plunges In Second QuarterEDS's Profit Plunges In Second Quarter

Hurt in part by diminishing sales to General Motors Corp. and a sharp decline in its management consulting business, IT services company EDS said Wednesday its earnings plunged 56% in the second quarter. Net income was $138 million, or 28 cents per share, compared with $316 million, or 64 cents per share, a year ago. The results include a $43 million charge against earnings taken by EDS to cover asset write-downs and severance payments to former CEO Dick Brown.

For the quarter ended June 30, EDS said revenue increased 5%, to $4.97 billion. However, sales to GM--EDS's biggest customer--dropped 16%, to $555 million. EDS blamed cutbacks in discretionary spending by the automaker for the decline. The company also said that operating cash flow during the period fell from $211 million a year ago to just $25 million. EDS issued $1.8 billion in high-interest corporate debt during the quarter to alleviate cash drains caused in part by commitments to large outsourcing projects such as the build-out of an intranet for the Navy and Marine Corps. Additionally, chairman and CEO Michael Jordan said in a statement that the company continues to have issues with "sales and operating efficiency."

New contracts during the quarter fell to $3.4 billion from $6.2 billion a year ago because of what Jordan called a "tepid IT spending environment." Sales of management consulting services by EDS's A.T. Kearney division plunged 27%, to $212 million, while sales of the company's product life-cycle management software dropped 10%, to $205 million. On the upside, EDS said sales of IT and business-process outsourcing services increased 3%, to $3.69 billion.