PER, article from Dallas
<<Shares of Perot Systems Corp. fell more than 20 percent Friday after the company said year 2000 earnings would be lower than expected. Some analysts were puzzled by the explanation for the shortfall, saying it amounted to old news.
On Thursday evening, after the close of regular-hours trading, officials at the Dallas-based computer services company said profits would be hurt by the expiration of an outsourcing contract with East Midlands Electricity of the United Kingdom and lower revenue from a long-standing agreement with UBS Warburg AG.
The Swiss bank, which is Perot Systems' biggest customer, has cut back on some spending.
The loss of East Midlands Electricity as a client, due to its merger with another company, was disclosed last year.
"While both are issues that need to be managed through, we do not believe that these are entirely the causes of the disappointment," said Advest analyst Michael Whitney, who downgraded the stock to "market underperform" from "strong buy."
John Lyon, Perot Systems investor relations spokesman, said the company has not previously discussed with analysts the quarter-to-quarter effects of either the UBS or EME contract.
He said new contract signings amount to $575 million through May, compared with $120 million for the same period last year.
"We're having a good year on contract signings, but they have not yet offset the unfavorable quarterly comparison with EME and UBS," he said.
Perot Systems said in the announcement that second-quarter results would fall short of the same quarter last year, when it earned $16.9 million, or 15 cents a share, on revenue of $282 million. Analysts had estimated earnings of 17 cents a share on revenue of $300 million.
Full-year earnings also could fall short of Wall Street's estimate of 70 cents a share, and revenue could be flat against last year's figure of $1.15 billion, the company said.
Mr. Whitney cut his 2000 earnings estimate to 49 cents a share on a diluted basis on revenue of $1.1 billion. He lowered his 2001 estimate to 60 cents on revenue of $1.2 billion.
He said, however, that the company gave him little guidance so his numbers "represent nothing more than a best guess."
On the New York Stock Exchange on Friday, shares of Perot Systems traded down $2.88 to a new 52-week low of $11.13. Volume exceeded 2.4 million shares, about eight times the stock's average daily volume. The stock's previous low was $13.50, with a high for the year of $29.56.
For the year, the stock is off about 42 percent. Chairman and chief executive Ross Perot, who owns the majority stake in the company, has seen the value of that equity drop by at least $100 million.
In 1999, 10 of Perot Systems' largest clients accounted for at least 65 percent of its revenue, according to analysts. UBS contributed 25 percent alone. East Midlands, the second-largest customer, contributed nearly 12 percent.
Mr. Whitney said the UBS troubles might have hurt sales but should not have affected per-share earnings. The UBS contract calls for Perot Systems to receive minimum levels of gross profit dollars each quarter, he said.
Mr. Whitney said the revenue shortfall might indicate that Perot Systems is "having trouble generating demand for projects" or matching client demand with its consultants.
Mr. Lyons dismissed the idea, noting that new business is up for the year. Perot Systems, which traditionally made most of its money from major corporate outsourcing contracts, has been trying to boost revenue from e-commerce consulting.
In 1999, Perot Systems signed about $1 billion in new contracts, with the majority coming from an 11-year, $700 million pact with Harvard Pilgrim Health Care Inc., a private HMO that early this year was placed into temporary receivership.>>
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