EDS, the big technology services company, late yesterday reported that adjusted net income for its first quarter rocketed to $165 million, or $0.31 per diluted share, compared with $33 million, or $0.06 per share, in the first quarter of fiscal 2006.
Top-line growth, however, inched up only 3% to $5.2 billion, from $5.1 billion in the year-ago period. Moreover, on an organic basis, first-quarter 2007 revenue actually declined 1%. Nevertheless, EDS's revenue for the first quarter ended March 31 came in at the middle of its guidance range, which was $5.1 billion to $5.3 billion.
Revenue from the manufacturing industry was $835 million, down from the $866 million recorded in last year's first quarter. Manufacturing customers represent 13% of EDS's overall business.
EDS officials cited the bottom-line results as evidence that the company's operational efficiency measures and key business initiatives, such as in its application services business, are working. "It was a solid quarter and really shows the impact of good, steady execution," said Michael Jordan, chairman and chief executive, during a conference call with financial analysts.
EDS said it signed $3.4 billion in contracts during the quarter, compared with $10 billion a year ago. The year-earlier quarter included a $3.6 billion General Motors deal and a $3.9 billion contract with the U.S. Navy. The first quarter's results included seven contracts valued at more than $100 million, including two in the manufacturing industry.
President and Chief Operating Officer Ron Rittenmeyer noted that the company's applications services business grew 9% in the quarter. EDS completed the acquisition of Global Enterprise Management Solutions, L.P. (GEMS), a provider of SAP-related IT services, implementation consulting, and reselling services to companies in the IT services, assembly/manufacturing, logistics, and transportation industries, during the first quarter.
In an interview following the financial analysts' call, Darl Davidson, vice president of the Manufacturing Industry business for EDS in the United States, said that although business conditions in the U.S. manufacturing market during the quarter were a "little soft," EDS reached 109% of what it refers to as its "total contract value." The two large contracts in the sector, which he said he could not identify by name, were with existing customers.
Davidson described the manufacturing market outside the United States as "pretty good" and noted that the Asia-Pacific region is growing strongly for EDS. He said he expected that growth to be aided by the recent openings of service centers in China and Argentina.
He also said that EDS's pipeline in the manufacturing market continues to grow and, like Rittenmeyer, emphasized the company's applications business as a source of growth. "GEMS is helping us with that," Davidson said.
A focus on specific industries is part of Jordan's plan to help drive revenue growth for EDS, which, since he joined in 2003, has been undergoing a transformation. In February, when EDS reported its fourth-quarter and year-end numbers, Jordan said he wanted EDS to shift to a more aggressive growth posture. That posture includes a longer-term revenue growth target of about 7%.
At a financial analysts meeting in New York later that month, Jordan emphasized, as did officials yesterday, that the formula for that growth consists of a continued drive for improvements in EDS's base IT services business; an emphasis on industry-specific sectors, including government and healthcare; operational improvements; and greater growth from the applications services business.
"Our goal over time is to begin to shift our mix," Jordan said at the February meeting. "We realize that to move beyond where we are today, we will have to make significant steps to alter our business profile."
EDS reiterated its full-year revenue guidance of $22 billion to $22.5 billion, but changed its earnings per share guidance, which had been $1.60, to a range of $1.55 to $1.60. For the second quarter of 2007, EDS expects revenue of $5.3 billion to $5.5 billion, and EPS of $0.22 cents to $0.27 cents.