Cognizant beats estimates with 4.2% rise in revenues; profit falls 39%

Topics Cognizant | Cognizant Q3

IT services major Cognizant beat Street estimates with better than expected revenue growth numbers for the fourth quarter ended December 2019 (the firm follows January-December cycle). However, revenue guidance for 2020 remained tepid as it is estimated to grow the top line by 2-4 per cent in the current year. 

The estimates took into account an impact of 110 basis points owing to the IT firm’s decision to exit the content services business, the Teaneck, New Jersey-based IT firm said. This revenue growth projection could also be the lowest compared to competitors such as Tata Consultancy Services, Infosys, Wipro and HCL Technologies, though these firms are yet to give their estimates for financial year 2020-21 (FY21). The firm’s net profit declined 39 per cent at $395 million for the fourth quarter (Q4) compared to $648 million a year ago. The fall in net profit was attributed to increase in restructuring charges, which rose to $101 million from $7 million a year earlier.

Revenues stood at $4.3 billion, an increase of 4.2 per cent in constant currency term (year-on-year, or YoY) in Q4. Operating margin remained flat at 17 per cent during this period.

The company is projected to grow its revenues in the range of 2.8-3.8 per cent in constant currency terms during Q1 2020. The subdued revenue growth estimates are because of its exit from content services business, which is likely to have a 60 basis points impact in the quarter.

“Our steady progress against key initiatives is increasingly evident in our commercial and financial performance,” said Brian Humphries, CEO at Cognizant. “We enter 2020 with renewed vigour and optimism.”

In calendar year 2019, Cognizant’s net profit declined 12 per cent YoY to $1.8 billion, while its revenues rose 5.2 per cent to $16.8 billion in constant currency terms. 

“Our 2020 outlook reflects our commitment to further improve our cost structure to fund investments in growth,” said Karen McLoughlin, chief financial officer of the company.

Revenue growth from its key verticals such as financial services and healthcare remained tepid in Q4. While the financial services segment with 34.3 per cent share grew only 1.2 per cent YoY, healthcare with 28.5 per cent contribution rose 1.6 per cent during this period. However, revenues from its products and resources vertical rose 8.1 per cent YoY and communications, media & technology grew 8 per cent during this period.

“The macroeconomic environment remained stable but challenging. We remain optimistic about growth as our digital business grows handsomely," said Humphries.

Despite optimisation in its employee pyramid, the headcount of the company rose by 2,600 on sequential basis to 292,500 by the end of December 2019. Attrition of the firm also fell by 300 basis points (quarter-on-quarter) to 21 per cent during this period. “We plan to hire or reskill around 25,000 staffers in new digital skills for improving our service delivery in this space,” Humphries said.

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