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Infosys (INFY) Q3 Earnings Beat, Up Y/Y; Guidance Narrowed
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Despite contracted IT spending and anti-immigration rhetoric of president-elect Donald Trump; IT and outsourcing services behemoth, Infosys Ltd. (INFY - Free Report) managed to top earnings estimates, giving investors a reason to celebrate.
The company reported third-quarter fiscal 2017 earnings per American Depository Share of 24 cents, beating the Zacks Consensus Estimate by a penny and up 4.3% on a year-over-year basis. The bottom line benefited from a modest top-line performance and diligent operational execution.
Quarterly Details
Revenues increased 6.0% year over year to $2,551 million, however missed the Zacks Consensus Estimate of $2,583 million. Moreover, in terms of constant currency, revenues were up 7.3%.
Top-line growth was largely supported by lucrative contract wins, the Renew-New strategy, growth in delivery services and lucrative client wins. During the reported quarter, the company added 77 clients, with two of them being in the above 75-million revenue bracket, which also proved conducive to revenue growth.
Infosys’ operating profit climbed 6.8% year over year to $640 million. Management believes that strong focus on operational improvement boosted the company’s operating profits in the quarter.
The company witnessed growth in all the four regions where it operates. Third-quarter sales in India, Rest of the World, North America and Europe improved about 29.8%, 14.5%, 5.0% and 1.6% year over year, respectively.
Six out of the seven company’s segments recorded year-over-year improvements in sales, boosting top-line performance. Financial Services revenues, Manufacturing, Energy & utilities, Communication and Services, Retail, Consumer packaged goods and Logistics, Life Sciences, Healthcare and Insurance were up 3.9%, 6.9%, 11.2%, 6.7% and 2.2% respectively. The High Tech segment edged down 0.5%, but “Other Segments” jumped 13.7%.
Renew New Strategy Progresses Well
Infosys has been diligently following the “Renew New” program, which lays the blueprint of its long-term growth. Under the “Renew” initiative, the company introduced offerings in the areas of Digital, Cloud, Data Sciences, Mainframe Modernization, Cyber security, API Microservices and Internet of Things.
Currently, Infosys is witnessing impressive market demand for mainframe modernization across all verticals, and is working jointly with Amazon Web Services and Azure, to help clients embrace cloud platforms. Under the “New” initiative, Infosys has been recording robust momentum in software and services, which, in turn, is bolstering its revenues. For instance, during the fiscal third quarter, the Mana client adoption more than doubled on a sequential basis.
Moreover, most of Infosys’ businesses, including Panaya, Skava & EdgeVerve software products, continued to deliver robust performance in the quarter. This, in turn, supplemented both the top and bottom lines. The company’s three distinguished offerings – Artificial Intelligence, Knowledge-based IT and Design Thinking – are proving to be key profit churners, helping to expand its market share. These services continued to gain solid traction by way of renewals.
Black Friday proved to be a major catalyst for Skava platform, as retail ecommerce sites witnessed about 30% spike in volumes. The EdgeVerve business clinched 18 wins and 21 go-lives from both the Finacle and Edge suite of solutions. Also, AssistEdge, a Robotic Process Automation platform and Panaya recorded solid growth in terms of bookings and revenues.
Key Hire
Concurrent with the fiscal third-quarter earnings release, Infosys declared that Ravikumar S. has been appointed as Deputy Chief Operating Officer and will be reporting to Pravin Rao, Chief Operating Officer. Ravikumar S. will head both global delivery organization and strategic Business Enabling Functions.
Liquidity
As of Dec 31, 2016, Infosys had cash & cash equivalents of $3,844 million, compared with $4,763 million recorded as of Sep 30, 2016.
Guidance Trimmed
Infosys, considered as a gauge for the health of the $3-trillion global enterprise spending market, narrowed its guidance for revenue growth this fiscal year to 8.4%–8.8%, from the previous expectation of 8%–9.0%.
To Conclude
Undoubtedly, Infosys had better-than-expected third-quarter fiscal 2017 results largely on the back of solid strategic execution. The company’s efforts to shift its focus from “cost-based, people-only model” to software plus services model, is stoking growth. Growing adoption of AI-based automation and software-led business are likely to fuel growth, going forward.
Despite the positives, two back-to-back guidance tweaks indicate the tough macroeconomic conditions hurting the company. Rapid proliferation of customizable Internet-based software has been hampering Infosys’ traditional outsourcing business, thus thwarting growth. Moving ahead, President-elect Donald Trump’s anti-immigration stance is likely to jinx Infosys’ plans to send low-cost developers to work on big tech projects in the U.S. Though the extent of this impact is yet to be determined, the Zacks Rank #4 (Sell) company is likely to face the brunt as major western clients might curtail spending further.
Stocks to Consider
Some better-ranked stocks in the broader computer & technology sector are Exa Corp. , Science Applications International Corporation (SAIC - Free Report) and SecureWorks Corp. (SCWX - Free Report) . While Exa Corp. sports a Zacks Rank #1 (Strong Buy), Science Applications and SecureWorks Corp. carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Exa Corporation develops, markets, sells, and supports software products, and provides professional services for simulation-driven design. The company has an excellent earnings surprise history, beating estimates each time over the trailing four quarters, and has an average beat of 68.1%.
Science Applications International Corporation provides technical, engineering, and enterprise information technology services in the U.S. It boasts a remarkable average surprise of 9.2% for the trailing four quarters, beating estimates all through.
SecureWorks Corp. provides intelligence-driven information security solutions focused on protecting organizations from cyber attacks. The company has posted an earnings beat of 55.6% during the last reported quarter.
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Infosys (INFY) Q3 Earnings Beat, Up Y/Y; Guidance Narrowed
Despite contracted IT spending and anti-immigration rhetoric of president-elect Donald Trump; IT and outsourcing services behemoth, Infosys Ltd. (INFY - Free Report) managed to top earnings estimates, giving investors a reason to celebrate.
The company reported third-quarter fiscal 2017 earnings per American Depository Share of 24 cents, beating the Zacks Consensus Estimate by a penny and up 4.3% on a year-over-year basis. The bottom line benefited from a modest top-line performance and diligent operational execution.
Quarterly Details
Revenues increased 6.0% year over year to $2,551 million, however missed the Zacks Consensus Estimate of $2,583 million. Moreover, in terms of constant currency, revenues were up 7.3%.
Top-line growth was largely supported by lucrative contract wins, the Renew-New strategy, growth in delivery services and lucrative client wins. During the reported quarter, the company added 77 clients, with two of them being in the above 75-million revenue bracket, which also proved conducive to revenue growth.
Infosys’ operating profit climbed 6.8% year over year to $640 million. Management believes that strong focus on operational improvement boosted the company’s operating profits in the quarter.
Infosys Limited Price, Consensus and EPS Surprise
Infosys Limited Price, Consensus and EPS Surprise | Infosys Limited Quote
Geographical & Industry-wise Performance
The company witnessed growth in all the four regions where it operates. Third-quarter sales in India, Rest of the World, North America and Europe improved about 29.8%, 14.5%, 5.0% and 1.6% year over year, respectively.
Six out of the seven company’s segments recorded year-over-year improvements in sales, boosting top-line performance. Financial Services revenues, Manufacturing, Energy & utilities, Communication and Services, Retail, Consumer packaged goods and Logistics, Life Sciences, Healthcare and Insurance were up 3.9%, 6.9%, 11.2%, 6.7% and 2.2% respectively. The High Tech segment edged down 0.5%, but “Other Segments” jumped 13.7%.
Renew New Strategy Progresses Well
Infosys has been diligently following the “Renew New” program, which lays the blueprint of its long-term growth. Under the “Renew” initiative, the company introduced offerings in the areas of Digital, Cloud, Data Sciences, Mainframe Modernization, Cyber security, API Microservices and Internet of Things.
Currently, Infosys is witnessing impressive market demand for mainframe modernization across all verticals, and is working jointly with Amazon Web Services and Azure, to help clients embrace cloud platforms. Under the “New” initiative, Infosys has been recording robust momentum in software and services, which, in turn, is bolstering its revenues. For instance, during the fiscal third quarter, the Mana client adoption more than doubled on a sequential basis.
Moreover, most of Infosys’ businesses, including Panaya, Skava & EdgeVerve software products, continued to deliver robust performance in the quarter. This, in turn, supplemented both the top and bottom lines. The company’s three distinguished offerings – Artificial Intelligence, Knowledge-based IT and Design Thinking – are proving to be key profit churners, helping to expand its market share. These services continued to gain solid traction by way of renewals.
Black Friday proved to be a major catalyst for Skava platform, as retail ecommerce sites witnessed about 30% spike in volumes. The EdgeVerve business clinched 18 wins and 21 go-lives from both the Finacle and Edge suite of solutions. Also, AssistEdge, a Robotic Process Automation platform and Panaya recorded solid growth in terms of bookings and revenues.
Key Hire
Concurrent with the fiscal third-quarter earnings release, Infosys declared that Ravikumar S. has been appointed as Deputy Chief Operating Officer and will be reporting to Pravin Rao, Chief Operating Officer. Ravikumar S. will head both global delivery organization and strategic Business Enabling Functions.
Liquidity
As of Dec 31, 2016, Infosys had cash & cash equivalents of $3,844 million, compared with $4,763 million recorded as of Sep 30, 2016.
Guidance Trimmed
Infosys, considered as a gauge for the health of the $3-trillion global enterprise spending market, narrowed its guidance for revenue growth this fiscal year to 8.4%–8.8%, from the previous expectation of 8%–9.0%.
To Conclude
Undoubtedly, Infosys had better-than-expected third-quarter fiscal 2017 results largely on the back of solid strategic execution. The company’s efforts to shift its focus from “cost-based, people-only model” to software plus services model, is stoking growth. Growing adoption of AI-based automation and software-led business are likely to fuel growth, going forward.
Despite the positives, two back-to-back guidance tweaks indicate the tough macroeconomic conditions hurting the company. Rapid proliferation of customizable Internet-based software has been hampering Infosys’ traditional outsourcing business, thus thwarting growth. Moving ahead, President-elect Donald Trump’s anti-immigration stance is likely to jinx Infosys’ plans to send low-cost developers to work on big tech projects in the U.S. Though the extent of this impact is yet to be determined, the Zacks Rank #4 (Sell) company is likely to face the brunt as major western clients might curtail spending further.
Stocks to Consider
Some better-ranked stocks in the broader computer & technology sector are Exa Corp. , Science Applications International Corporation (SAIC - Free Report) and SecureWorks Corp. (SCWX - Free Report) . While Exa Corp. sports a Zacks Rank #1 (Strong Buy), Science Applications and SecureWorks Corp. carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Exa Corporation develops, markets, sells, and supports software products, and provides professional services for simulation-driven design. The company has an excellent earnings surprise history, beating estimates each time over the trailing four quarters, and has an average beat of 68.1%.
Science Applications International Corporation provides technical, engineering, and enterprise information technology services in the U.S. It boasts a remarkable average surprise of 9.2% for the trailing four quarters, beating estimates all through.
SecureWorks Corp. provides intelligence-driven information security solutions focused on protecting organizations from cyber attacks. The company has posted an earnings beat of 55.6% during the last reported quarter.
The Best Place to Start Your Stock Search
Today, you are invited to download the full list of 220 Zacks Rank #1 ""Strong Buy"" stocks – absolutely free of charge. Since 1988, Zacks Rank #1 stocks have nearly tripled the market, with average gains of +26% per year. Plus, you can access the list of portfolio-killing Zacks Rank #5 ""Strong Sells"" and other private research. See these stocks free >>