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Cognizant earnings beat expectations, revenues in line

By Ang Gao
Medill Reports

Cognizant Technology Solutions Corp., based in New Jersey, is a leading provider of information technology, consulting and business process services.  Cognizant reported a loss of $18 million, or 3 cents per diluted share, for the fourth quarter of 2017, compared with net income of $416 million, or 68 cents per diluted share, in the fourth quarter of 2016. But adjusted earnings topped Wall Street’s estimate and the stock rose around 4 percent.

The net loss in 2017 included a one-time incremental tax expense of $617 million related to the U.S Tax Cuts and Jobs Act, according to the company’s press release. Without the tax charge, earnings per share were $1.03 in the fourth quarter, up from 87 cents per share in the same quarter of 2016, which beat the estimate of 97 cents per share compiled by Bloomberg.

Revenues rose to $3.83 billion in the quarter, up 10.6 percent from $3.46 billion in the quarter a year ago, which was in line with the estimate of $3.83 billion reported by Bloomberg.

“Consistent and solid execution throughout 2017, along with continued investments to further accelerate the shift to digital during the year, gives us confidence that we can deliver a strong 2018,” said Francisco D’Souza, the CEO of Cognizant, in a press release. “As companies that are already leaders in their industries integrate their domain knowledge with today’s tremendously powerful technologies like artificial intelligence, analytics and cloud, we see a new generation of digital heavyweights emerging.”

Strong performances in Europe and “Rest of World” contributed to Cognizant’s quarterly revenue growth, said Jamie Friedman, senior research analyst at Susquehanna International Group LLP.

Revenues from Europe grew 18.1 percent year-over-year and represented 16.5 of total revenues in the fourth quarter. “Rest of Europe” increased 31.7 percent and “Rest of World” increased 17.5 percent compared with the same quarter of 2016. Revenues from North America increased only 8.5 percent.

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Cognizant has a strong revenue growth in international regions in the fourth quarter of 2017. Feb.8, 2018 (Ang Gao/MEDILL)

Among business segments, communication, media and technology led with a revenue increase of 19.0 percent in the fourth quarter. Product and resources rose 13.7 percent, followed by healthcare with an increase of 11.9 percent.

The financial services segment didn’t do well, Friedman said, gaining only 5.4 percent.

The GAAP operating margin was 17.2 percent and the non-GAAP margin was 19.7 percent in the quarter. Friedman said the company made changes to its cost structure and tried to be more efficient.

“In the fourth quarter, we continued to take actions that we expect will improve our cost structure and operating margins while allowing us to continue to invest in the business for growth,” said Karen McLoughlin, chief financial officer, in a conference call.

The company predicted revenue to be in the range of $3.88 billion to $3.92 billion in the first quarter of 2018 and the non-GAAP diluted earnings per share to be at least $1.04.

The company’s net income was $1.50 billion, or $2.53 per diluted share in the full year 2017. Revenues increased to $14.81 billion in 2017, up 9.8 percent from $13.49 billion in 2016.

Cognizant shares closed at $76.52 on Wednesday, up $2.62 or 3.55 percent.

Photo at top: Logo of New Jersey-based Cognizant Technology Solutions Corp. (Ang Gao/MEDILL)