Unisys Swings to a Loss

Revenue rose 3%.
Author:
Publish date:

Updated from 10:15 a.m. EDT

Unisys

(UIS) - Get Report

said early Wednesday that it swung to a second-quarter loss and tempered its outlook for the full year because of problems with business process outsourcing contracts.

Unisys shares were recently trading down 11 cents, or 1.6%, at $6.59.

Blue Bell, Pa.-based Unisys, which provides IT consulting and outsourcing services, reported a loss of $27.1 million, or 8 cents a share, in the second quarter, which includes a pretax pension expense of $45.8 million, or 9 cents a share. That compared with net income of $19.4 million, or 6 cents a share, in the same period a year earlier, which included a pension expense of $24.8 million, or 5 cents a share.

The second-quarter 2005 results included pretax pension expense of $45.8 million, or 9 cents a share, compared with pension expense of $24.8 million, or 5 cents a share, in the year-ago quarter.

Excluding the impact of pension expense in both periods, second-quarter 2005 net income was $4.1 million, or 1 cent a share, compared with net income of $36.3 million, or 11 cents a share, in the second quarter of 2004.

Analysts polled by Thomson First Call were expecting the company to lose 10 cents a share, including the pension expense, in the second quarter, which ended June 30.

Unisys said revenue rose 3% to $1.44 billion from $1.39 billion a year ago. That surpassed the consensus estimate of analysts calling for $1.38 billion in sales, but included a 3-percentage-point positive impact from a weak dollar.

Unisys President and CEO Joseph McGrath said the company's second-quarter results were hurt by ongoing issues with business process outsourcing contracts as well as the weak demand for enterprise servers.

On a conference call, McGrath explained that two contracts in particular have been hurting margins. The company is trying to renegotiate terms of those contracts with customers, as well as renegotiate labor contracts, hire new personnel and streamline processes to address the problems, but it's taking longer than expected to work through the issues, McGrath said.

One of the contracts involves the company's check-processing utility in the U.K. -- a joint venture with banks generating about $200 million a year. Unisys is in negotiations to sell its ownership position or make other changes to the agreement. McGrath hopes to resolve the problems with the contract by the end of the year, which should result in a lift to the company's services margins, he said.

But as a result of the problem with business process outsourcing contracts, Unisys "tempered" its outlook for the rest of the year. Looking forward, Unisys expects third-quarter revenue to increase in the mid-single-digit percentages from last year's total of $1.45 billion and expects third-quarter earnings excluding pension expense to range from 4 cents to 6 cents a share. Analyst estimates last called for Unisys to post $1.48 billion in sales and 7 cents a share in earnings in the third quarter.

The company now expects 2005 earnings excluding pension expenses of 33 cents to 38 cents a share and revenue to grow in the low-single-digit percentages from a year ago, when sales totaled $5.82 billion. Including pension expenses estimated at 36 cents a share, Unisys expects its bottom line to range from a loss of 3 cents a share to a profit of 2 cents per share for 2005.

Despite its issues with business process outsourcing contracts, however, McGrath stressed that the company is not stepping away from the market, which it expects to grow at a rapid clip.

The company's outsourcing business posted double-digit growth in the second quarter. Orders also increased in the double-digit percentages with services orders showing strong growth for the second consecutive quarter, Unisys reported.