EDS fourth-quarter earnings up 20 percent

DALLAS, Feb 4 Reuters reports computer services company Electronic Data Systems Corp. on Thursday posted a 20 percent increase in fourth-quarter earnings, excluding a one-time credit, as companies and governments outsourced computer operations in order to cut costs.

Plano, Texas-based EDS, the world's No. 2 computer services provider after International Business Machines , also said it expected to see continued double-digit earnings growth in 2002, noting its resistance to the economic downturn because it benefits from cost-cutting efforts of other companies.

Shares of EDS fell to $56.50 on Instinet in after-hours trade, down from its close at $59.00 on the New York Stock Exchange before the earnings news.

``Revenues were a little bit light. The operating results were quite good,'' SoundView analyst Gary Helmig said.

EDS said fourth-quarter earnings were $396 million, or 81 cents per diluted share, compared with $331 million, or 70 cents, a year earlier. Fourth-quarter operating margin rose 90 basis points from a year earlier to 11.4 percent.

Including a one-time credit of $10 million in unused reserves from a 1999 restructuring plan, EDS said earnings rose 26 percent to $405 million, or 82 cents per diluted share, from $321 million, or 68 cents, in the year earlier period.

Wall Street had an average earnings estimate of 79 cents and average revenue forecast of $6 billion, according to Thomson Financial/First Call.

EDS said fourth-quarter revenues rose 14 percent to $5.9 billion from $5.2 billion a year earlier. The increase was 13 percent when adjusted to exclude the effects of currency exchange rates, acquisitions, divestitures and business with its biggest single customer, General Motors Corp. .

EDS Chief Financial Officer Jim Daley said expectations may have been high because organic base revenue grew 16 percent or better in the previous four quarters, but that fourth-quarter growth in both total revenues and organic base revenues was within the company's target range of 13 percent to 16 percent.

Daley said EDS expected base organic revenue growth in 2002 to continue in that range, which he said was the general growth rate for the information technology services market.

Looking forward, EDS said it was comfortable with a Wall Street consensus of 65 cents per share in the current first quarter and $3.05 per share for the full year 2002.

Chairman and Chief Executive Dick Brown in a conference call with analysts dismissed speculation in the wake of energy giant Enron Corp.'s collapse that EDS faced a risk from its practice of arranging financing for new computer equipment for some customers .

``EDS's financial foundation is rock solid. Our accounting is conservative, clear and concise,'' Brown said.

EDS officials and several analysts have said there is no parallel between Enron's off-balance sheet deals and EDS, which arranges bank financing for some of its outsourcing customers to buy equipment that EDS then operates. The bank, not EDS, carries the credit risk unless EDS fails to perform and the contract is canceled, company officials have said.

Daley said that out of $135 billion in total contract signings since 1995, EDS has arranged $2.8 billion of bank financing for customer equipment and only twice had to take over equipment worth a total of $30 million. Those were two contracts that EDS said it voluntarily canceled in 1999.

EDS had $907 million in potential obligations at the end of 2001 for equipment it helped customers finance, Daley said.

Rival IBM, which has a large hardware business as well as computer services, last month said fourth quarter earnings and revenue fell from a year earlier as the economic downturn hit spending on computer systems and services.

EDS shares have gained about 5 percent in the past year and has outperformed the broad S&P 500 benchmark index by about 32 percent since February 2001.