2nd UPDATE: Capgemini 3Q Revenue -7.1%; Lowers Revenue Targets

French IT-services group Capgemini SA (CAP.FR) Thursday reported third-quarter revenue fell a worse-than-expected 7.1%, as most businessescontinued to suffer from the economic downturn, and it revised down its full-year and second half revenue guidance.

But Paris-based Capgemini, Europe's largest computer services company, said it still expects its margin on earnings before interest and tax, or EBIT, to be around 7% this year due to tight cost controls.

Still, at 1051 GMT shares were trading down 3.9% to EUR31.23 after having gained about 14% since the start of the year, as investors were disappointed with the lower sales guidance.

Capgemini said it expects fourth-quarter revenue to fall about 9% on a like-for-like basis, as it did in the third quarter. This was the first time the company specifically guided on the fourth quarter.

Chief Executive Paul Hermelin said that for the full year Capgemini expects organic sales, which strip out acquisitions, disposals, and currency movements, to fall 5.5% from a year earlier, while it expects second-half revenue to drop around 9%.

The company previously forecast full-year organic sales would decline 3%-4%, with the second half down 4%-6%.

The cut in full-year and second-half revenue guidance represents a "significant miss," said WestLB analyst Jonathan Crozier. WestLB has a neutral rating on Capgemini.

Hermelin also cautioned it is too soon to forecast revenue for all 2010., but said he expects the company to slow its revenue decline over the next year with a return to growth for the fourth quarter.

"Although there are signs that activity is stabilizing and even picking up in some market segments, benefits are not expected to filter through immediately," the company said in a statement.

Reported third quarter sales of EUR1.95 billion were below an average EUR2.02 billion forecast by six analysts polled by Dow Jones Newswires, hit by an average 12.5% like-for-like decline in consulting, technology and local professional services.

The IT services sector has been hard hit by the economic crisis as companies have scaled back on new projects, which has in particular hit consulting activities.

Still, demand for outsourcing has grown as companies use outsourcing projects to save money in the downturn.

Indeed, Capgemini said outsourcing services remained a "stabilizing force" despite posting a 2.7% organic revenue decline in the third quarter due to the loss of its contract with U.S. energy company TXU Corp. (TXU).

Wednesday, U.K.-based rival Logica PLC (LOG.LN) posted higher revenue and orders for the third quarter as it secured more outsourcing work.

Capgemini's bookings for outsourcing services rose 7% from last year in the quarter, while bookings in the other three businesses declined an average 8%, Hermelin said in a conference call. Total bookings in the three months to Sept. 30 declined 3% to EUR1.98 billion.

The company, which also competes with French rival Atos Origin (ATO.FR) and whose customers include banks such as HSBC Holdings PLC (HBC) and carmakers like BMW AG (BMW.XE), said it is positioning itself for the emerging economic upturn, and will launch five comprehensive service offerings between now and March 2010. "The offerings focus on high-growth markets, such as those targeted by Business Information Management," it said.

-By A.H. Mooradian and Ruth Bender, Dow Jones Newswires; [phone]; [e-mail] , [e-mail]