EDS Reports $4 Million Profit In 1Q

The IT services company says it might sell off its A.T. Kearney consulting group.
IT services company EDS on Monday reported mixed results for its first quarter while saying that it may spin off its struggling A.T. Kearney consulting unit.

The company swung to a $4 million profit for the three months ending March 31, compared with what would have been a $44 million loss a year earlier using comparable accounting standards. EDS's reported loss for the first quarter of 2004 was $12 million, but that didn't include stock-option expenses that the company now recognizes as an expense under revised accounting rules.

Despite turning a profit, EDS saw its sales slip 5% in the first quarter. Total revenue was $4.94 billion, compared with $5.2 billion a year earlier. Earnings per share improved to 1 cent, compared with a loss of 9 cents a year ago using consistent accounting standards. Wall Street analysts were, on average, expecting the company to report per-share earnings of 3 cents.

New contract signings rose sharply in the quarter to $7.1 billion, compared with $3.8 billion a year ago. The numbers were boosted by a 10-year, $3.8 billion deal to provide a range of IT services for the United Kingdom's Ministry of Defense.

The increased signings, along with the company's return to profitability, are "further evidence that EDS has turned the corner," Cindy Shaw, a Moors & Cabot Capital Markets analyst, said in a report issued after EDS released its results.

Looking ahead, EDS says it expects second-quarter revenue to fall between $5 billion and $5.2 billion, with a loss of 2 to 7 cents per share, mostly because of the loss of a contract with the United Kingdom's Inland Revenue department.

EDS officials also said Monday that they might sell consulting group A.T. Kearney to its partners sometime this year. The unit's first-quarter revenue declined 12% to $204 million, with an operating loss of $11 million.

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