EDS Q4 earnings hit by UA’s bankruptcy

NEW YORK: Troubled computer services company Electronic Data Systems Corp. has said that it has cut its fourth-quarter earnings forecast by 10 percent, citing the bankruptcy of leasing partner United Airlines. EDS said it now expected earnings for the period to be reduced by 5 cents per share, but it did not specify a range. The consensus among analysts surveyed by First Call had been for a profit of 52 cents per share.

EDS, the No. 2 computer services company behind IBM Corp., said the shortfall was related to certain aircraft lease agreements it struck with United, a unit of UAL Corp., in 1991. It said the balance associated with those leases was about $40 million.

The exposure to United is the latest in a laundry list of bad news from Plano, Texas-based EDS. In September the company stunned Wall Street by warning that its third-quarter results would be just a fraction of its previous estimate, citing the protracted softness in the computer services sector.

It also said profits were being pinched from long-term contracts with WorldCom Inc., the bankrupt long-distance phone company and US Airways. On its third-quarter conference call in October, however, EDS Chief Executive Richard Brown sounded an upbeat note with analysts, reiterating that full-year 2002 earnings would range from $2.05 to $2.10 cents a share.

He also stressed EDS believed it had completed the process of winnowing out contracts from troubled customers. The bankruptcy of United Airlines, however, means the full-year earnings forecast will also be cut by 5 cents a share, to a range of $2.00 to $2.05.

A final determination by United Airlines as to the status of these leases post-bankruptcy is not expected in the near term, EDS said in a statement. EDS said it has no other significant commercial relationships with United Airlines. Shares of EDS were off 1.7 percent, or 297 cents, at $16.60 in late-morning trade on the NYSE, way off their year high of $71.25.

© Reuters