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EDS Light on Contracts

The IT outsourcer's profit and sales rise in the second quarter, but new contracts are shy of EDS' goal.

Updated from 4:47 p.m. EDT

Tech services giant



edged past second-quarter earnings estimates and guided in line for the full year, but quarterly contract signings came up light.

The company reported net income of $138 million, or 26 cents a share, up from $104 million, or 20 cents a share, in the same quarter a year earlier.

Factoring out charges from discontinued operations, earnings rose 35% to 27 cents a share. This beat analysts' average estimate by a penny.

Revenue rose 5% to $5.45 billion, in line with analyst forecasts and the company's target range.

"EDS continued to make significant operational progress in the second quarter," said Mike Jordan, chairman and chief executive officer. "Earnings and revenues were solid and keep us on pace to achieve our full-year guidance."

Revenue from the Americas, EDS' largest regional customer base, rose 2%, excluding the loss of a large contract, and accounted for 47% of total revenue.

Revenue from projects in the Asia-Pacific regions contributed 8% to total revenue and grew 26%. This outpaced revenue growth from all other regions.

In the quarter, EDS signed $4.3 billion in contracts, including government programs for satellite communications and biometric security. EDS also extended a contract with the largest


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Contract signings were slightly ahead of the $3.4 billion level reached in first quarter but still left EDS less than halfway toward its goal to end the year with at least $23 billion in signings.

In the same quarter last year, EDS signed $5.4 billion in contracts.

During a conference call, Chief Operating Officer Ron Rittenmeyer blamed the shortfall in bookings on an inability to finalize negotiations for three large contracts. But he added that one of the contracts closed early in the third quarter, and that EDS expects to close 50 deals valued at more than $100 million in the second half of the year.

Rittenmeyer is slated to replace Chief Executive Mike Jordon on Sept. 1.

The company's cash flow fell more than 50% to $156 million compared with the second quarter last year, when EDS benefited from two large, one-time payments.

For the coming quarter, EDS forecast earnings of 37 cents to 43 cents a share vs. analysts' average estimate of 43 cents. The company expects third-quarter revenue of $5.6 billion to $5.8 billion, slightly above forecasts.

For the full year, EDS reaffirmed its prior earnings forecast of $1.55 to $1.60 a share and revenue between $22 billion and $22.5 billion.

Both estimates are roughly in line with analysts' expectations.

EDS lowered its free cash flow target to a range of $900 million to $1 billion because of additional "capital requirements," including equipment and personnel for large contracts that are getting underway. Some cash will also fund the addition of personnel and resources in India, which EDS hopes will lower its long-term operating costs.

Shares of EDS shares were recently trading down 69 cents, over 2.5%, to $26.50.