Technology services giant EDS late yesterday reported that both revenue and net income rose in the second quarter, driven, in part, by internal operational improvements as well as the development of new service capabilities.
The Plano, TX-based company reported revenue of $5.45 billion, up 5% from $5.19 billion recorded in the like period of 2006. Organic growth, however, registered only 1%. Adjusted net income rose to $143 million, or $0.27 per diluted share, from $107 million, or $0.20. The revenue figure was in the range of EDS' guidance, which was $5.3 billion to $5.5 billion, and earnings per share were at the high end of what the company had predicted.
Revenue from the manufacturing sector grew to $894 million in the second quarter, from $878 million a year ago.
"EDS continued to make significant operational progress in the second quarter," said Chairman and Chief Executive Mike Jordan, in a prepared statement. "Earnings and revenues were solid and keep us on pace to achieve our full-year guidance. We improved our competitiveness by building on our capabilities in applications services, deploying our Global Services Network, and continuing to drive leverage, standardization, and quality in our global delivery system."
EDS said it signed $4.3 billion in contracts in the second quarter, compared with $5.4 billion a year ago. Six of the deals in the second quarter are worth more than $100 million, and they include contracts in the communications, government, financial services, and consumer goods industries.
Nevertheless, EDS officials were questioned about the company's growth prospects, particularly its bookings, during a conference call with financial analysts yesterday.
Ronald A. Rittenmeyer, president and chief operating officer, who will succeed Jordan as CEO on Sept. 1, defended the company's performance, saying 2006 was influenced by large contract wins from General Motors and the U.S. Navy. He said he was optimistic about the company's prospects going forward. He also said three large deals in the second quarter slipped into the third quarter; one of them was signed just recently.
"Our bookings are still pretty positive," Rittenmeyer said. "We're putting a lot of focus on applications. I'm pretty comfortable that we have a good line of sight."
Even though Rittenmeyer said that EDS has identified "50 megadeals" that are now in its pipeline for the second half, he noted that there has been a trend toward smaller contracts, which EDS is prepared to deal with. "We're not going to be dependent on elephant hunting," he said.
Asked about acquisitions, Jordan said that EDS has "seven or eight" active negotiations under way and expects to spend $1 billion to $2 billion a year on this effort. "We think the market is improving for strategic acquisitions," Jordan said. "We have a lot of irons in the fire." EDS has said that target areas for acquisitions are in SAP-related products and industry-related applications.
EDS reaffirmed its full-year revenue guidance of $22 billion to $22.5 billion and adjusted EPS of $1.55 to $1.60. The company said it expects third-quarter revenue in the range of $5.6 billion to $5.8 billion and adjusted EPS of $0.37 to $0.43.