In fiscal Q3, Perot Systems' (NYSE:PER) revenues increased 12% to $655 million. Earnings came to $25 million, or $0.20 per share, which is up from breakeven in the same period a year ago. In spite of an increase in revenue, the stock price fell 7.65% to $14.85 on Tuesday.
On its face, it was a good performance. However, the information technology (IT) provider is suffering from a slowdown in the health-care space. In early October, Perot lost a major services agreement with Triad, which recently sold out to Community Health Systems (NYSE:CYH). The main reason is that Community Health intends to bring the services in house.
As a result, Perot Systems will get a termination fee and a payment for shutdown costs, which will produce a $0.20 to $0.22 per-share benefit. Despite this, the loss is still a disappointment because the contract was likely to provide profits over the long haul.
There are even more problems. On the conference call, Perot's management talked about a "challenging" environment; that is, budget pressures for hospitals as well as the federal government. As a result, Perot is laying off 650 employees as part of its effort to produce $34 million in costs savings. This makes sense in light of the loss of the Triad contract.
At the same time, Perot needs to fend off fierce competitors like Accenture (NYSE:ACN), EDS (NYSE:EDS), and IBM (NYSE:IBM).
There's a sign of uncertainty about the outlook. Might revenue worsen even more? On the conference call, management didn't have much visibility on this -- other than Q4 should see revenues of $700 million-$715 million, which factors in the $45 million from the Triad termination. So taking into account Perot's choppy history and the market environment, it's probably best to remain on the sidelines with the stock.
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