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A SPECIAL ANNEX NEWSFLASH
Updated 9/24/02, 2:45 p.m. PDT (adds stock chart)
In a Surprise Analyst Call...
EDS Issues Earnings Warning
Net Profit to Drop Sharply in Third, Fourth Quarter
TUCSON, Sep. 18 - In a surprise analyst call after the markets closed today (Sep 18), Electronic Data Systems (EDS) issued an earnings warning that is likely to move the markets tomorrow. The company said it would earn 12 cents to 15 cents a share ($58 million to $74 million) in the third quarter. That's down sharply from its earlier estimate of 74 cents a share ($364 million), and compared to the net earnings of 44 cents a share ($212 million), a year before.
In the fourth quarter, EDS said it expected net income of 57 cents to 59 cents a share ($283 million to $293 million), relative to its previous estimate of 88 cents a share ($433 million), and to 82 cents a share ($405 million), in 2001.
The company expects the third quarter revenue to drop 2% to 5% from last year's $5.56 billion, compared with its previous estimate for an increase of 4% to 6%. Fourth-quarter revenue is expected to drop between 3% and 7% from $5.91 billion.
Only last month, EDS revised downward its February free cashflow projection for 2002 of $700 million to $900 million, to $600 million to $800 million. Now, the company says its 2002 free cashflow will likely be between $200 million and $400 million.
Those are the bare bones facts. As to the reasons behind the disappointing news, "we expected our clients' spending to tighten up, not virtually stop," said Dick Brown, EDS's CEO, referring to the tough economic conditions in which the IT services companies operate around the world.
EDS was also negatively affected by its two major customers filing for bankruptcy protection (US Airways and WorldCom). Plus, costs were higher than expected on several big contracts in Europe. And the company is still booking no profit at all from its largest megadeal ever closed - the U.S. Navy contract - pending the completion of extensive Congress-mandated tests.
But when asked if the spending hiatus was limited just to large companies, Brown said that the slowdown actually reflected a broader market weakness.
The EDS CEO ended the analyst conference on an upbeat note. "We'll be back, I promise you that," he said answering an analyst's question.
Happy bargain hunting!
P.S. Following the analyst call this afternoon, the EDS stock reportedly dropped over 36% in after-hours trading - from $36.50 to $24 per share. The severity of the drop suggests that the EDS news may also drag down other high-tech stocks tomorrow, especially those of its direct competitors.
For additional Annex Research reports on EDS, check out...
of EDS 4Q01 Results (Feb 8, 2002)
Takes Over US Navy (Oct. 10, 2000)
of EDS 2Q Business Results (July 26, 2001)
of EDS 3Q01 Results (Oct 25, 2001)
Second Quarter Results (July 28, 2000)
Bulletin - 98-28 ("EDS 2Q98")
Bulletin - 99-04 (EDS 4Q98)
Bulletin - 98-38 (EDS 3Q98)
Bulletin - 2000-02 (EDS' e-Price Clubs)
Volume XVIII, Annex Newsflash No.
Editor: Bob Djurdjevic
P.O. Box 97100, Phoenix, Arizona
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