Infosys Beats in 3Q, Outlook Weak

Infosys Technologies Limited ( INFY - Analyst Report ) reported third quarter fiscal 2013 earnings per ADS from continuing operations of 76 cents, beating the Zacks Consensus Estimate of 72 cents by 5.6%. However, earnings were down 5.0% year over year and 1.3% sequentially. Profits in the quarter were impacted by delayed decision-making by customers, cancellations of projects, continued margin pressure and Hurricane Sandy (as the company primarily has operations in the East Coast).

Business Details

Total revenue for the quarter was $1.9 billion, up 5.8% year over year. The company saw growth in retail and manufacturing as well as in banking and insurance. The company delivered a decent quarter in terms of client additions. During the reported quarter, Infosys added 14 new clients for Infosys’ products and platforms. Apart from this, Infosys and its subsidiaries added 53 clients during the quarter. Infosys added 8 large outsourcing deals worth $731 million. The company’s cloud-based offerings attained good momentum during the quarter.

Further, Infosys completed the Lodestone Holding AG acquisition related procedures as projected. Based in Lodestone Holding AG, is a leading management consultancy.

Geographical segments

During the reported quarter, revenue in North America grew 1.6% both sequentially and in constant currency. In Europe, revenues grew 16.6% sequentially and 14.4% in constant currency. Revenues in India grew 44.7% sequentially while revenues from the Rest of the world increased 7.4% both sequentially and in constant currency.

Segment Details

Revenues in the Financial Services segment (FSI) climbed 6.4% sequentially and 6.0% in constant currency in the third quarter of 2012. Manufacturing segment (MFG) revenues increased 4.6% sequentially and 4.0% in constant currency. Revenues from the Retail and Life Sciences division (RCL) went up 6.6% sequentially and 6.2% in constant currency, while revenues in the Energy, Utilities, Communications & Services (ECS) improved 7.8% sequentially and 7.1% in constant currency.

Income

The company recorded an operating profit of $491 million compared to $560 million in the prior-year period. Net profit after tax was $434 million for the quarter, down 5.2% year over year.

Operating margin during the reported quarter contracted 531 basis points (bps) to 25.7% versus 31.0% in the prior year period. Margins of the company have been under pressure for more than 4-5 quarters now.

Balance Sheet

Infosys maintains a strong liquidity position and had cash & cash equivalents (including investments in available-for-sale financial assets, certificates of deposits and government bonds) of 2.7 billion as of December 31, 2012 compared to $4.0 billion as of March 31, 2012.

Outlook

Concurrent with the earnings release, management also provided a brief outlook for 2013. Earnings per ADS are expected to be $2.97 while revenues for 2013 are expected to be at least $7.5 billion.

Infosys currently has a short term Zacks Rank #3 (Hold) rating on the stock. Two of the company’s peers Cognizant Technology Solutions. ( CTSH - Analyst Report ) and Accenture PLC ( ACN - Snapshot Report ) are short-term Zacks Rank #3 (Hold) stocks.