(Adds estimate, outlook, revenue, byline)
By Wei Gu
NEW YORK, April 26 (Reuters) - Electronic Data Systems Corp. , the nation's No. 2 technology services provider, on Monday posted a much narrower quarterly loss but lowered its 2004 earnings forecast due to the sale of a business and additional risk from its money-losing U.S. Navy contract.
EDS, whose shares fell 4 percent in after-hours trading, has had problems winning profitable new contracts because of its high cost structure. New management has slashed jobs and moved work abroad to reduce costs and improved contract signings, but the Navy contract continues to drag.
"EDS is a very big ship. To turn it is not something that can be done in a quarter or two," said Joseph Vafi, an analyst with Jefferies & Co. "The company is still flushing out some problematic contracts, taking some charges there."
The company, based in Plano, Texas, reported a loss for the first quarter of $12 million, or 2 cents a share, compared with a loss of $1.4 billion, or $3 a share, a year earlier.
Apart from the 19 cents a share loss from the Navy contract, first quarter results reflect an operating loss and asset write-down of $94 million, or 12 cents per share, related to an unidentified commercial contract.
EDS would not name the client, but several analysts said it could be Dow Chemical Co. , which in 2000 awarded EDS a seven-year contract valued at $200 million a year to upgrade its existing global communication network.
"Our client has determined that the best course of action is an amicable separation, a divorce if you will," Chief Financial Officer Bob Swan told reporters, adding a resolution is seen in the current quarter.
EDS said a termination of the contract may result in some impairment of the contract's remaining $123 million assets and additional losses in the second quarter.
EDS expects second-quarter revenue, excluding the planned sale of software unit UGS PLM, of $5.1 billion to $5.2 billion. It also anticipates a loss between 6 cents a share and break-even, weighed down by 19 cents to 21 cents a share loss from the $6 billion navy contract.
For 2004, EDS sees revenue of $20 billion to $21 billion, and earnings per share of 20 cents to 40 cents, compared with its earlier view of a profit of 50 cents to 60 cents a share.
EDS said the sale of PLM is expected to cost it 19 cents. It also expects the Navy contract to have a negative 10 cents a share to neutral impact on its original forecast.
Analysts had expected a second-quarter profit of 9 cents a share and 2004 earnings of 48 cents a share.
EDS said revenue rose 4 percent to $5.43 billion from $5.22 billion, helped by a weak dollar. But excluding currency impacts, acquisitions and divestitures, revenue fell 2 percent.
The company lost several big contracts last year. Its biggest client, General Motors Corp. , continues to reduce the amount of work it hands over to EDS.
"The structure of the company is very fixed cost oriented, it is very difficult for them to compete on price," said Christopher Penny, an analyst with Friedman, Billings, Ramsey. "So in an economic recovery, when price is an issue, they are having a very hard time."
Excluding restructuring costs and a gain from selling an auto services unit, EDS posted a loss of 1 cent a share, in line with analysts' average expectation, according to Reuters Research, a unit of Reuters Group Plc.
As EDS slashes its costs, contract signings rose 33 percent to $4.0 billion, helped by business from small clients. But that is still lower than its revenue, indicating its business is contracting.
EDS fell to $18.50 from $19.23 in after hours trade.