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Cognizant (CTSH) Q3 Earnings Up Y/Y, Revenues Miss Estimates
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Cognizant Technology Solutions (CTSH - Free Report) reported third-quarter 2022 non-GAAP earnings of $1.17 per share, which matched the Zacks Consensus Estimate and improved 10.4% year over year.
Revenues of $4.9 billion missed the consensus mark by 2.94%. However, the top line increased 2.4% year over year. At constant currency (cc), revenues grew 5.6%. The reported figure was within management’s revenue guidance of $4.90 billion to $4.94 billion.
The growth in the top line was led by digital revenues, which accounted for 51% of revenues and increased 7% year over year. However, the digital revenue growth slowed down due to FX headwinds, lower inorganic contribution and elevated attrition, particularly in Europe.
Top-Line Details
Financial services revenues (31.3% of revenues) increased 1.6% year over year at cc to $1.52 billion, led by growth in the insurance business. However, clients' focus on cost optimization and the sale of the Samlink subsidiary affected the segment’s revenue growth by 180 basis points (bps).
Healthcare revenues (28.9% of revenues) increased 5.5% year over year at cc to $1.4 billion. The growth was driven by increased demand for its digital services among pharmaceutical clients.
Products and Resources revenues (23.6% of revenues) climbed 8.2% year over year at cc to $1.15 billion, courtesy of strong demand from automotive, logistics, retail and consumer goods clients.
Communications, Media and Technology revenues (16.1% of revenues) were $783 million, up 10.4% from the year-ago quarter at cc, owing to strong demand for digital transformation, 5G networking, IoT and AI solutions.
Cognizant Technology Solutions Corporation Price, Consensus and EPS Surprise
Region-wise, revenues from North America increased 4% year over year at cc and accounted for 74.6% of total revenues.
Revenues from Europe increased 10.3% from the year-ago quarter at cc and made up 18.2% of total revenues. Revenues from the U.K. and Continental Europe increased 18.7% and 2.9% year over year, at cc, respectively.
Rest of the World's revenues increased 9.3% at cc and represented 7.2% of total revenues.
Operating Details
Selling, general & administrative (SG&A) expenses, as a percentage of revenues, decreased 220 bps year over year to 18%.
Cognizant reported a non-GAAP operating margin of 15.5%, which increased 110 bps year over year.
Balance Sheet
CTSH had cash and short-term investments of $2.7 billion as of Sep 30, 2022, compared with $2.3 billion as of Jun 31, 2022.
The company has no significant debt maturities until 2023. As of Sep 30, 2022, Cognizant had a total debt of $636 million, down from $646 million as of Jun 31, 2022.
It generated $1.03 billion in cash from operations compared with $528 million in the previous quarter.
Free cash flow was $953 million compared with $485 million reported in the prior quarter.
In third-quarter 2022, Cognizant returned $300 million through share repurchases and $141 million in dividends to shareholders.
As of Sep 30, 2022, it had $1.5 billion remaining under the current share repurchase program.
Guidance
Fourth-quarter 2022 revenues are expected between $4.72 billion and $4.77 billion, indicating growth of 2-3% on a cc basis.
Revenues for 2022 are now expected to be $19.3 billion, indicating an improvement of 7% on a cc basis.
The company expects the adjusted operating margin to expand by 20 bps to 15.6% for 2022.
Adjusted earnings for 2022 are expected to be $4.43-$4.46 per share.
Zacks Rank & Stocks to Consider
Cognizant currently carries a Zacks Rank #3 (Hold).
The stock has lost 32.1% compared with the Zacks Computer and Technology sector’s decline of 35.4% in the year-to-date period.
Here are some better-ranked stocks worth considering in the broader sector.
BLZE shares have lost 73.8% in the year-to-date period compared with the Zacks Internet - Software industry’s decline of 61.9%.
Tencent Music Entertainment Group (TME - Free Report) is also a Zacks Rank #2 stock. The company is set to report third-quarter 2022 earnings on Nov 15.
TME shares have lost 45.4% in the year-to-date period compared with the Zacks Internet - Content industry’s decline of 42.1%.
ACM Research (ACMR - Free Report) has a Zacks Rank #2. The company is set to report third-quarter 2022 earnings on Nov 4.
ACMR shares have lost 78.7% in the year-to-date period compared with the Zacks Internet - Content industry’s decline of 62.7%.
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Cognizant (CTSH) Q3 Earnings Up Y/Y, Revenues Miss Estimates
Cognizant Technology Solutions (CTSH - Free Report) reported third-quarter 2022 non-GAAP earnings of $1.17 per share, which matched the Zacks Consensus Estimate and improved 10.4% year over year.
Revenues of $4.9 billion missed the consensus mark by 2.94%. However, the top line increased 2.4% year over year. At constant currency (cc), revenues grew 5.6%. The reported figure was within management’s revenue guidance of $4.90 billion to $4.94 billion.
The growth in the top line was led by digital revenues, which accounted for 51% of revenues and increased 7% year over year. However, the digital revenue growth slowed down due to FX headwinds, lower inorganic contribution and elevated attrition, particularly in Europe.
Top-Line Details
Financial services revenues (31.3% of revenues) increased 1.6% year over year at cc to $1.52 billion, led by growth in the insurance business. However, clients' focus on cost optimization and the sale of the Samlink subsidiary affected the segment’s revenue growth by 180 basis points (bps).
Healthcare revenues (28.9% of revenues) increased 5.5% year over year at cc to $1.4 billion. The growth was driven by increased demand for its digital services among pharmaceutical clients.
Products and Resources revenues (23.6% of revenues) climbed 8.2% year over year at cc to $1.15 billion, courtesy of strong demand from automotive, logistics, retail and consumer goods clients.
Communications, Media and Technology revenues (16.1% of revenues) were $783 million, up 10.4% from the year-ago quarter at cc, owing to strong demand for digital transformation, 5G networking, IoT and AI solutions.
Cognizant Technology Solutions Corporation Price, Consensus and EPS Surprise
Cognizant Technology Solutions Corporation price-consensus-eps-surprise-chart | Cognizant Technology Solutions Corporation Quote
Region-wise, revenues from North America increased 4% year over year at cc and accounted for 74.6% of total revenues.
Revenues from Europe increased 10.3% from the year-ago quarter at cc and made up 18.2% of total revenues. Revenues from the U.K. and Continental Europe increased 18.7% and 2.9% year over year, at cc, respectively.
Rest of the World's revenues increased 9.3% at cc and represented 7.2% of total revenues.
Operating Details
Selling, general & administrative (SG&A) expenses, as a percentage of revenues, decreased 220 bps year over year to 18%.
Cognizant reported a non-GAAP operating margin of 15.5%, which increased 110 bps year over year.
Balance Sheet
CTSH had cash and short-term investments of $2.7 billion as of Sep 30, 2022, compared with $2.3 billion as of Jun 31, 2022.
The company has no significant debt maturities until 2023. As of Sep 30, 2022, Cognizant had a total debt of $636 million, down from $646 million as of Jun 31, 2022.
It generated $1.03 billion in cash from operations compared with $528 million in the previous quarter.
Free cash flow was $953 million compared with $485 million reported in the prior quarter.
In third-quarter 2022, Cognizant returned $300 million through share repurchases and $141 million in dividends to shareholders.
As of Sep 30, 2022, it had $1.5 billion remaining under the current share repurchase program.
Guidance
Fourth-quarter 2022 revenues are expected between $4.72 billion and $4.77 billion, indicating growth of 2-3% on a cc basis.
Revenues for 2022 are now expected to be $19.3 billion, indicating an improvement of 7% on a cc basis.
The company expects the adjusted operating margin to expand by 20 bps to 15.6% for 2022.
Adjusted earnings for 2022 are expected to be $4.43-$4.46 per share.
Zacks Rank & Stocks to Consider
Cognizant currently carries a Zacks Rank #3 (Hold).
The stock has lost 32.1% compared with the Zacks Computer and Technology sector’s decline of 35.4% in the year-to-date period.
Here are some better-ranked stocks worth considering in the broader sector.
Backblaze (BLZE - Free Report) currently has an Earnings ESP of +7.41% and a Zacks Rank #2 (Buy). The company is set to report third-quarter 2022 earnings on Nov 9. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
BLZE shares have lost 73.8% in the year-to-date period compared with the Zacks Internet - Software industry’s decline of 61.9%.
Tencent Music Entertainment Group (TME - Free Report) is also a Zacks Rank #2 stock. The company is set to report third-quarter 2022 earnings on Nov 15.
TME shares have lost 45.4% in the year-to-date period compared with the Zacks Internet - Content industry’s decline of 42.1%.
ACM Research (ACMR - Free Report) has a Zacks Rank #2. The company is set to report third-quarter 2022 earnings on Nov 4.
ACMR shares have lost 78.7% in the year-to-date period compared with the Zacks Internet - Content industry’s decline of 62.7%.