Cognizant Q3 Revenue Meets Expectations; Net Profit Down 3.6%

Information technology (IT) services major Cognizant’s third quarter earnings met Street expectations on the revenue front but its net profit was below the projection.

The New Jersey-headquartered company also cut the higher end of its full year growth guidance, indicating a slower pace of revenue growth in the coming quarter.

During the quarter ended September, the Nasdaq-listed firm reported 3.6 per cent decline in net profit on a year-on-year (YoY) basis at $477 million owing to higher net non-operating foreign exchange losses arising from the rupee depreciation. However, net profit rose 4.6 per cent sequentially.

Revenue of the firm, which competes fiercely with big Indian IT firms, including Tata Consultancy Services (TCS) and Infosys, rose 8.3 per cent to $4.08 billion compared to $3.77 billion reported in the same period last year. In sequential terms, the revenues went up by 1.74 per cent. According to Bloomberg estimates, revenue for the quarter was projected at $4.08 billion, while profit was estimated to be $658.15 million.

Compared to Cognizant, market leader TCS reported a better dollar-term revenue growth of 10 per cent on YoY basis in the July-September period, while Infosys’s dollar revenue grew at 7.1 per cent.

“Cognizant delivered a strong third quarter numbers in three of the four business segments. We made continued progress in our shift to the digital mode by building new capabilities and helping our clients excel with digital services and solutions,” said Francisco D’Souza, chief executive officer and vice-chairman of the board at Cognizant. During the September quarter, revenue from digital services grew around 20 per cent on YoY basis.

On the operating margin (non-GAAP) front, Cognizant witnessed 110 basis points improvement in margins at 21.1 per cent on YoY basis, but sequentially, margins contracted 90 bps. The company said higher levels of utilisation, optimisation of employee mix and cost control measures were factors driving its strong margin profile. In the September quarter, while TCS’s operating margins improved 150 bps sequentially to 26.5 per cent, it remained flat for Infosys at 23.7 per cent.

“We delivered solid performance in the third quarter as we continued to focus on sustainable revenue growth while increasing margins,” said Karen McLoughlin, chief financial officer at Cognizant.

For the full year, the US-listed firm revised its revenue guidance downwards with a cut at the top end of the range. The company now expects its revenue to be in the range of $16.09 billion at $16.13 billion in 2018 compared to its previous guidance of $16.05 billion at $16.30 billion.

Its revised guidance will translate into around 9 per cent growth in revenue for the year as compared to its earlier projections of 8-10 per cent for 2018.

In the September quarter, the financial services business, which accounts for 35.9 per cent of its overall revenue, saw a YoY growth of 2.6 per cent. Cognizant’s communications, media & technology vertical grew by 17.1 per cent, while healthcare vertical rose 9.6 per cent on a YoY basis.

The IT services firm added 5,300 employees in the quarter to take its total headcount to 274,200. Its attrition level stood at 22.3 per cent, down 30 basis points on sequential basis. Its offshore utilisation level remained at 83 per cent, while onsite utilisation was flat at 93 per cent in the September quarter. – Business Standard