Electronic Data Systems Corp. (EDS) yesterday said that third-quarter adjusted net income jumped to $128 million, compared with $70 million in the third quarter last year, on a 9% revenue gain to $5.29 billion. Earnings per share rose to 24 cents, from 13 cents.
The technology services giant said revenue and operating profit increased in all of its key geographic areas as well as in the U.S. government market. Revenue results in the manufacturing industry, however, slipped slightly to $825 million, from $859 million.
Clay Snyder, EDS's global manufacturing industry automotive sector lead, said in an interview that the quarter-to-quarter comparison in manufacturing was affected by a number of significant contracts signed in the third quarter of 2005. "There were a couple of big wins in '05 that influenced that number," he said. "We're down a little bit, but it's nothing trendy."
Snyder said that EDS's overall manufacturing industry growth, for which the company does not provide specific numbers, has been in line with IT spending growth in manufacturing. He said the addressable market globally has been growing at a 6% to 8% rate.
However, the automotive sector, with its well-publicized problems, has been "tough," Snyder said. Nevertheless, EDS won a major contract renewal during the third quarter with Delphi, the automotive parts supplier. Across all sectors, EDS said that it signed $3.5 billion in contracts during the quarter, down from the $5.3 billion inked in the like period last year.
EDS continued to move ahead with key initiatives in the manufacturing industry during the third quarter, Snyder noted. Last month, EDS launched a product lifecycle management program that grew out of a 2005 alliance with UGS Corp., formerly an EDS unit. The program combines EDS's systems and applications integration capabilities with UGS PLM software and services.
Another major initiative that picked up steam in the quarter, Snyder said, is called Integrated Manufacturing Operations (IMO). The program's objective is to help manufacturers update and integrate information systems in plants and factories. "The initiative shows clients, starting with their infrastructures, how to run applications in their plants better, how to better integrate, and how to drive modernization," Snyder said.
EDS has been developing a framework for this initiative, which encompasses common processes and systems, including in the MES area. "We're fairly along on the framework," Snyder said. "It's about 80% complete. We will wrap it up this year." He said he expects EDS to start delivering IMO capabilities by the second quarter of 2007.
EDS's IMO initiative will be advanced by a key hire made in the third quarter. Snyder said he brought in Ben Langlinais, a former sales executive at GM, to be director of portfolio integration for manufacturing.
In discussing the third-quarter financial results during a conference call with analysts yesterday, EDS executives said that on a GAAP (generally accepted accounting principles) basis, reported third-quarter net income was $125 million, or 24 cents per share, compared with $8 million, or 2 cents per share, in last year's third quarter. Third-quarter 2006 adjusted net income excludes net after-tax losses associated with discontinued operations of $5 million and the reversal of previously recognized restructuring expenses of $1 million, EDS said.
EDS reduced headcount by 2,000 during the quarter. The company has the goal of a 5,000 headcount reduction for all of 2006.
On an organic basis, EDS said revenue grew 6%. This excludes the impact of currency fluctuations, acquisitions, and divestitures.
Revenue in its Americas region grew 2% to $2.3 billion and operating profit inched up 1% to $349 million. In its European region, revenue grew 4% to $1.5 billion and operating profit jumped 10% to $228 million. Asia-Pacific revenues rose 12% to $389 million, with operating performance soaring 68% to $53 million.
Results in its U.S. government sector showed the most dramatic improvement. Revenues jumped 27% to $895 million, primarily due to what EDS said was a Navy Marine Corps Intranet contract, which helped catapult operating profit 180% to $215 million.
The results came as EDS continues to execute on a business transformation and improvement plan put into place in 2003 following the loss of key Navy and other contracts. The company undertook what it called a "strategic framework to grow" that emphasizes agility, cost competitiveness, execution and accountability, and client focus. These objectives were referred to yesterday in comments by senior executives.
"EDS posted another solid quarter reflecting improved execution on contracts, increased productivity, and better management of overhead costs," said Mike Jordan, EDS chairman and chief executive, in a statement. Added Ron Vargo, chief financial officer: "In the third quarter, we achieved continued year-over-year improvement in operating margin, while maintaining an aggressive level of investments aimed at improving our future cost structure and providing competitive market offerings."
For the fourth quarter, EDS said it expects revenue in the range of $5.5 billion to $5.7 billion and adjusted earnings per share of 33 cents to 38 cents. The company also "narrowed" its guidance for all of 2006 to revenue of $21.1 billion to $21.3 billion (previously $21.5 billion), with adjusted per-share earnings of 83 cents to 88 cents.