Unisys Corp found itself basking in the unfamiliar glow of security analyst congratulations yesterday, as the company unveiled a positive second quarter, and chairman and CEO Larry Weinbach assured his audience that the company is meeting its targets. We have an organization now that executes against the game plan, he said.
The Blue Bell, Pennsylvania company said that net income for the second quarter of 199 rose 32.9% to $119m on revenue up 9% to $1.89bn. For the six months ended June 30 net income climbed 51.1% to $230.9m, and revenue grew 9% to $3.7bn. Leaving aside the negative impact of currency fluctuations, second quarter revenue growth would exceed 12%, the company said.
At the top line, we achieved double-digit revenue growth on a constant currency basis driven by growth in both our services and technology business. At the bottom line, continued progress in controlling expenses allowed us to increase our profit margin nearly two percentage points to 12.5%. Our earnings also benefited from our ongoing effort to reduce interest expense and eliminate preferred stock dividends, said Weinbach.
Backing up this message of broad progress across the company, Weinbach was able to point to increased orders, shortened inventory, increased margins and reduced debt. The only real blot on the quarter was the currency weaknesses of Latin America which contributed a revenue decline in the region, depressing the strong gains made in Europe and North America, and very substantial revenue gains in Asia.
Services, Unisys’ strategic direction and the subject of its most diligent investment and efficiency drives, responded with increased demand that drove services revenue up 12%, or 15% if the continued and industry wide decline in proprietary maintenance revenue is omitted. Gross services profit margins now stand at 24.9%, against 24.4% in the same quarter a year ago. Operating margins in the services business improved 1% to 8.4%.
In its technology business, Unisys reported revenue up 3% for the quarter, thanks to continued strong growth in sales for its Clearpath mainframe servers, and despite the predicted decline in technology orders. Weinbach said the 3% hike in revenues was pleasing, but warned that realistically the company is confident that its original projection of flat technology sales in the year will be realized plus or minus 1%.
Overall, general and administrative expenses in the quarter fell to 18.1% of revenue from 19.0% in the period a year ago, while the company improved its operating profit margin for the quarter from 10.7% to 12.5%.
Perhaps the strongest evidence of the company’s continued turn around was the reduction in debt that resulted from Unisys’ call, on June 30, of the remaining Series A preferred stock at $50 per share and accrued dividends of 18 cents a share. It had earlier completed the call of six million Series A Cumulative Convertible Preferred Stock. Another $425m of debt at 12% is callable from April 5 2000, and $50m at 11.75% in October 2001. However, Weinbach said the company did not foresee any material dilution to earnings in the future as a result of debt recall.
Nevertheless Unisys is clearly moving from a debt laden balance sheet to one laden with cash. Although this doesn’t seem to attract the multiples it once did, said Weinbach, a cash positive balance sheet was still an old-fashioned mark of health and a potential acquisition fund. Unisys ended the quarter with a $439m of cash on hand and while Weinbach stressed that the company was not going to go hog wild and make acquisitions he confirmed that it has been reviewing potential takeover targets.
