Cognizant's all-round show reaffirms IT recovery hopes

Posts 19% growth in net profit, raises full-year revenue outlook to 19% from 17% earlier

Information technology  (IT) services company Cognizant on Tuesday posted healthy results for the quarter ended June, underlining hopes of a strong recovery in demand for technology outsourcing services in global markets, especially in North America.

The Nasdaq-listed company, which follows an offshore model similar to many other Indian IT players, not only recorded better-than-expected revenue growth, it also scaled up its annual revenue forecast by two percentage points to 19 per cent.

Industry body National Association of Software and Services Companies (Nasscom) had estimated annual growth at 12-14 per cent.

In the quarter, Cognizant reported $300.4 million in profit, up 19.2 per cent from the year-ago period. Revenue grew 20.4 per cent to $2.16 billion on an annual basis, backed by all-round performance by key verticals and geographies.

“It feels like the good old days. Cognizant beat revenue and EPS (earnings per share) expectations and it guided expectations higher than before — now, the full-year revenue forecast is almost at our much-higher-than-consensus estimate and still includes the use of  ‘at least’ to form a lower bound on this estimate,” equity research firm Citi Research said in a note.

Sequentially, net profit rose 5.7 per cent, while revenue increased seven per cent. During the quarter, Cognizant added $141 million of revenue compared to the previous quarter, the second-highest incremental revenue addition in its history.

The company saw broad-based growth across regions, industries and services. North American operations, which account for 78 per cent of the overall revenue, grew six per cent sequentially and 17 per cent annually. Operations in Europe, the second-largest market for the company, with revenue contribution of 18 per cent, grew 37 per cent annually and 11.2 per cent sequentially, one of the best performances by an offshore-centric IT services company in that region.

For the quarter ending September, Cognizant has estimated revenue at about $2.25 billion, 4.1 per cent more than in the quarter ended June. For the entire year, the company expects revenue to be at least $8.74 billion, growth of 19 per cent over the previous year.

It may be noted, in May 2013, when the company reported its first quarter results the company gave a guidance of 17%.

Francisco D’Souza, Chief Executive Officer commented that “our 15 year record of revenue and earnings growth is a testament to our long-term strategy of reinvesting in our business to stay relevant to our clients’ changing needs and to provide increasing value as we grow each of those trusted relationships.

This reinvestment strategy continues to enable Cognizant to excel in our core services while simultaneously investing in multiple horizons of growth, thereby continuing to position us well for the future.”

"Economic pressures and long-term secular industry shifts have been driving fundamental changes in client demands," added Gordon Coburn, President of the Company.

He added, clients are increasingly turning to Cognizant to address their dual mandate of running better, or enhancing performance in their current businesses, and running different, or helping improve the positioning of their businesses for future success.

As a result of Cognizant’s ability to address this dual mandate from one integrated platform, we are seeing strong market demand for our services which is allowing us to increase our revenue guidance for the full year.