The preliminary results mostly included earnings-per-share revisions. The company now expects Q2 pro forma EPS of $0.09, compared with its previous guidance of a loss of $0.02 to $0.07 per share.
Pro forma earnings exclude a $0.06 negative impact from expensing stock and issuing restricted stock, as well as a $0.02 positive impact from various net gains.
Including these impacts, the new outlook has as-reported Q2 EPS at $0.05, on net earnings of $26m. EDS also improved its full-year pro forma EPS guidance to between $0.50 and $0.60, or as-reported EPS of between $0.24 and $0.34.
EDS also put Q2 revenue at $5.2bn, in the upper range of past guidance. Despite expected Q2 bookings of $2.8bn – the company’s lowest quarterly level in seven years – the company reaffirmed its expectation of about $20bn in annual bookings.
Merrill Lynch analyst Greg Smith attributed the low Q2 bookings to lackluster signings across the entire sector, as well as IBM’s impressive second-quarter bookings. But EDS booked an unexpected $7.1bn in the first quarter, buoyed by a big deal with the British Ministry of Defence.
Smith said the earnings revision could reflect several developments, such as one-time gains, incremental productivity improvements, or good news on the $6.9bn Navy contract signed in 2000.
The positive outlook also indicates progress in EDS’ restructuring and cost-cutting initiatives, Smith added. He said operating margins and cash flow results in next week’s announcement would be good indicators of this progress.
Merrill Lynch has upgraded EDS stock from Sell to Neutral, and Smith said that EDS clients no longer have to worry about the financial viability of the company. But he remained skeptical of the more than $20bn in projected bookings for the year.
Merrill Lynch has investment banking, securities, and non-securities relationships with EDS. It owns more than 1% of EDS’ common stock and has received compensation from EDS in the past 12 months.
