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Cognizant (CTSH) Q2 Earnings Beat Estimates, Revenues Up Y/Y

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Cognizant Technology Solutions (CTSH - Free Report) reported second-quarter 2022 non-GAAP earnings of $1.14 per share, which beat the Zacks Consensus Estimate by 0.05% and improved 18% year over year.

Revenues of $4.9 billion missed the consensus mark by 0.32%. However, the top line increased 7% year over year. At constant currency (cc), revenues grew 9.5%. The reported figure was within management’s revenue guidance of $4.90 billion and $4.94 billion.

The growth in revenues was led by digital revenues, which accounted for 50% of revenues and increased 13% year over year. However, the digital revenue growth slowed down due to FX headwinds, lower inorganic contribution and elevated attrition, particularly in North America.

Top-Line Details

Financial services revenues (31.4% of revenues) increased 5.1% year over year at cc to $1.54 billion. Growth in financial services revenues led to an increase in digital revenues. However, clients' focus on cost optimization and the sale of the Samlink subsidiary impacted the segment’s revenue growth by 190 basis points.

Healthcare revenues (28.7% of revenues) increased 7.6% year over year at cc to $1.41 billion. The growth was driven by increased demand for its digital services among pharmaceutical clients.

Products and Resources revenues (23.2% of revenues) climbed 11.6% year over year at cc to $1.14 billion, courtesy of strong demand from automotive, logistics, retail and consumer goods clients and a solid contribution from acquisitions.

Communications, Media and Technology revenues (16.6% of revenues) were $816 million, up 19.5% from the year-ago quarter at cc, owing to strong demand for data services among digital-native companies.

Region-wise, revenues from North America increased 8.6% year over year at cc and accounted for 74.5% of total revenues.

Revenues from Europe increased 12.6% from the year-ago quarter at cc and made up 18.4% of total revenues. Revenues from the U.K. and Continental Europe increased 24.7% and 2.5% year over year, at cc, respectively.

Rest of the World's revenues increased 11.2% at cc and represented 7.1% of total revenues.

Operating Details

Selling, general & administrative (SG&A) expenses, as a percentage of revenues, decreased 120 bps year over year to 18%.

Cognizant reported a non-GAAP operating margin of 15.5%, which increased 50 bps year over year.

Balance Sheet

Cognizant had cash and short-term investments of $2.3 billion, which were flat as of Mar 31, 2022.

The company has no significant debt maturities until 2023. As of Jun 31, 2022, Cognizant had a total debt of $646 million, down from $655 million as of Mar 31, 2022.

It generated $528 million in cash from operations compared with $306 million in the previous quarter.

Free cash flow was $485 million compared with $186 million reported in the prior quarter.

In second-quarter 2022, Cognizant returned $744 million through share repurchases and $141 million in dividends to shareholders.

As of Jun 30, 2022, Cognizant had $1.4 billion remaining under the current share repurchase program.


Third-quarter 2022 revenues are expected between $4.98 and $5.03 billion, indicating growth of 7.5-8.5% on a cc basis.

2022 revenues are now expected to be $19.7-$19.9 billion, indicating an improvement in the range of 8.5% to 9.5% on a cc basis.

The company expects the adjusted operating margin to expand by 20 basis points-30 basis points to 15.6-15.7%.

Adjusted earnings for 2022 are expected to be $4.51-$4.57 per share.

Zacks Rank & Stocks to Consider

Cognizant currently carries a Zacks Rank #3 (Hold).

Cognizant’s shares have fallen 20.8% compared with the Zacks Computer and Technologysector’s decline of 25.9% in the year-to-date period.

Here are some better-ranked stocks worth considering in the broader sector.

Axcelis Technologies (ACLS - Free Report) sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

ACLS’ shares have decreased 10.1% in the year-to-date period compared with the Zacks Electronics - Manufacturing Machinery industry’s decline of 29.8%. ACLS is scheduled to report second-quarter 2022 results on Aug 3.

Aspen Technology (AZPN - Free Report) carries a Zacks Rank #2 (Buy).

Aspen’s shares have returned 22.3% in the year-to-date period against the Zacks Internet - Software industry’s decline of 52.6%. AZPN is scheduled to report second-quarter 2022 results on Aug 8.

Arrow Electronics (ARW - Free Report) carries a Zacks Rank #2.

ARW’s shares have fallen 8.3% in the year-to-date period compared with the Zacks Electronics - Parts Distribution industry’s decline of 7.5%. Arrow is scheduled to report second-quarter 2022 results on Aug 4.

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