The company said productivity and performance improvements in its large outsourcing contracts, including its substantial Navy contract, drove higher earnings and margins, indicating progress with its ongoing restructuring initiative.

Last week EDS substantially improved its second-quarter earnings outlook over its previous guidance, sending shares up 4.2% to close at $20.57 on heavy trading Friday.

Revenue totaled $5.2bn, down 1% from Q2 2004, and bookings for the quarter came in at $2.8bn, the lowest level for EDS in the past seven years.

The company attributed low bookings to third quarter slippage. Despite signing a normal number of small deals, several bigger contracts from Q2 won’t be signed until the next quarter. But EDS has still done nearly $10bn in first-half booking this year, and expects about $20bn for the year.

In terms of its business segments, EDS chairman and CEO Mike Jordan said the BPO business, particularly the human resource outsourcing and Medicaid claims business, was thriving. Jordan added that EDS will begin leveraging its Medicaid claims processing experienceit now manages systems for 19 statesin the commercial health care market.

On the applications delivery side, Jordan said the company had an aggressive strategy to triple it offshore headcount in the next several years to account for 40% and 45% of all commercial application delivery employees. And in the infrastructure business, Jordan said EDS is now highly competitive in the market and will continue to focus on automation services.

EDS remains confident that it will fare well in next year’s recompete for the GM contract, responsible for 8.6% of total revenue in Q2. The company said it has included the expected financial impact from the recompete in its 2006 guidance, and that under conservative estimates, EDS can expect 2007 revenues from GM to be about half of 2004 levels.

Full-year guidance for 2005 includes total revenue of $20bn to $21bn, and pro forma EPS of $0.50 to $0.60, excluding the impact of about $0.29 per share from stock option expensing and issuing restricted stock, as well as a positive impact of $0.03 per share for various first-half 2005 net gains.

EDS shares rose 3.7% to close at $21.29 on Wednesday. Following the Q2 announcement after market close, shares rose another 7.7% to $22.93 in early after-hours trading.