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Cognizant (CTSH) Q4 Earnings & Revenues Miss Estimates
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Cognizant Technology Solutions Corp.’s (CTSH - Free Report) fourth-quarter 2016 adjusted earnings of 76 cents per share fell short of the Zacks Consensus Estimate of 77 cents. Revenues of $3.462 billion also missed the Zacks Consensus Estimate of $3.491 billion. However, sales grew 7.1% year over year.
Cognizant also has announced that it has reached a settlement with activist investor, Elliot Management and will now appoint three independent directors to its board. Two will be named prior to the sending of the proxy statement for 2017 Annual Meeting of Stockholders, the company added. Cognizant also said that it has approved a new share repurchase plan worth $3.4 billion over the next two-year time frame. In the current quarter, management expects to buy back $1.5 billion shares and start paying cash dividend of 15 cents from the second quarter of 2017.
Quarter Details
Segment wise, the Financial services segment (39.1% of revenues) that includes insurance, banking and transaction processing grew 3.5% year over year to $1,354 million. Health care (29% of revenues) grew 5.6% year over year to $1.005 billion. Manufacturing/Retail/Logistics (19.9% of revenues) continued its growth momentum and jumped 12.6% year over year to $688 million. Other revenues (12% of revenues), which includes sales from service-oriented industries like communications, media and high tech, were $415 million, up 14.6% from the year-ago quarter.
Region-wise, revenues from North America increased 7.2% year over year and represented 78.4% of total revenue. Revenues from United Kingdom (7.9% of the total revenues) declined 10.8% year over year, though Rest of Europe witnessed an increase of 21.9% in sales, which contributed 7.6% to total revenue. The remaining 6.1% came from the Rest of the World where revenues increased 17.8%.
Selling, general & amortization (SG&A) expense, as a percentage of revenues, increased 70 basis points (bps) from the year-ago quarter to 21.1%.
The company reported non GAAP operating margin of 18.7%.
Balance Sheet
Cognizant exited the quarter with cash and cash equivalents (and short-term investments) of $5.169 billion, compared with $4.949 billion as of Dec 31, 2015. The company’s long-term debt was $797 million compared with $877 million as of Dec 31, 2015.
Cognizant Technology Solutions Corporation Price, Consensus and EPS Surprise
For the first quarter of 2017, the company expects revenues in a range of $3.51 billion to $3.55 billion. The Zacks Consensus Estimate for the same is pegged at $3.51 billion. Non-GAAP earnings per share are expected to be 83 cents.
Cognizant initiated guidance for 2017. Revenues are now expected to be in a range of $14.56 billion to $14.84 billion while non GAAP earnings are expected to be $3.63. The Zacks Consensus Estimate for revenues and earnings is pegged at $14.81 billion and $3.29, respectively.
Our Take
Cognizant is consistently developing its capabilities to benefit from the ongoing digital transition especially when it comes to integration of the new digital framework with legacy technology platforms. Cognizant recently stated that it will now be making more investments as well as M&A to speed up its digital capabilities. Strategic acquisitions have been a key growth catalyst for Cognizant. Acquisitions such as that of TriZetto and more recently, the buyouts of Mirabeau BV and the technology and business process services unit of Frontica Business Solutions AS are likely to benefit the company.
Also, Cognizant has been increasing its focus on high profit areas like professional consulting and business-process outsourcing, which is a big positive.
However, the company has been seeing some sluggishness of late in the healthcare and financial sector, which are its biggest markets. Moreover, in such a turbulent market, the company has to constantly fend off competition from peers like Accenture (ACN - Free Report) , Infosys (INFY - Free Report) and Wipro Ltd. (WIP - Free Report) .
Currently, Cognizant has a Zacks Rank #4 (Sell). A look at Cognizant’s past one year price performance shows that it has underperformed the Zacks categorized Business Software Services/BPO industry. Shares are down 0.48% compared with 1.93% gain witnessed in the overall industry.
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Cognizant (CTSH) Q4 Earnings & Revenues Miss Estimates
Cognizant Technology Solutions Corp.’s (CTSH - Free Report) fourth-quarter 2016 adjusted earnings of 76 cents per share fell short of the Zacks Consensus Estimate of 77 cents. Revenues of $3.462 billion also missed the Zacks Consensus Estimate of $3.491 billion. However, sales grew 7.1% year over year.
Cognizant also has announced that it has reached a settlement with activist investor, Elliot Management and will now appoint three independent directors to its board. Two will be named prior to the sending of the proxy statement for 2017 Annual Meeting of Stockholders, the company added. Cognizant also said that it has approved a new share repurchase plan worth $3.4 billion over the next two-year time frame. In the current quarter, management expects to buy back $1.5 billion shares and start paying cash dividend of 15 cents from the second quarter of 2017.
Quarter Details
Segment wise, the Financial services segment (39.1% of revenues) that includes insurance, banking and transaction processing grew 3.5% year over year to $1,354 million. Health care (29% of revenues) grew 5.6% year over year to $1.005 billion. Manufacturing/Retail/Logistics (19.9% of revenues) continued its growth momentum and jumped 12.6% year over year to $688 million. Other revenues (12% of revenues), which includes sales from service-oriented industries like communications, media and high tech, were $415 million, up 14.6% from the year-ago quarter.
Region-wise, revenues from North America increased 7.2% year over year and represented 78.4% of total revenue. Revenues from United Kingdom (7.9% of the total revenues) declined 10.8% year over year, though Rest of Europe witnessed an increase of 21.9% in sales, which contributed 7.6% to total revenue. The remaining 6.1% came from the Rest of the World where revenues increased 17.8%.
Selling, general & amortization (SG&A) expense, as a percentage of revenues, increased 70 basis points (bps) from the year-ago quarter to 21.1%.
The company reported non GAAP operating margin of 18.7%.
Balance Sheet
Cognizant exited the quarter with cash and cash equivalents (and short-term investments) of $5.169 billion, compared with $4.949 billion as of Dec 31, 2015. The company’s long-term debt was $797 million compared with $877 million as of Dec 31, 2015.
Cognizant Technology Solutions Corporation Price, Consensus and EPS Surprise
Cognizant Technology Solutions Corporation Price, Consensus and EPS Surprise | Cognizant Technology Solutions Corporation Quote
Guidance
For the first quarter of 2017, the company expects revenues in a range of $3.51 billion to $3.55 billion. The Zacks Consensus Estimate for the same is pegged at $3.51 billion. Non-GAAP earnings per share are expected to be 83 cents.
Cognizant initiated guidance for 2017. Revenues are now expected to be in a range of $14.56 billion to $14.84 billion while non GAAP earnings are expected to be $3.63. The Zacks Consensus Estimate for revenues and earnings is pegged at $14.81 billion and $3.29, respectively.
Our Take
Cognizant is consistently developing its capabilities to benefit from the ongoing digital transition especially when it comes to integration of the new digital framework with legacy technology platforms. Cognizant recently stated that it will now be making more investments as well as M&A to speed up its digital capabilities. Strategic acquisitions have been a key growth catalyst for Cognizant. Acquisitions such as that of TriZetto and more recently, the buyouts of Mirabeau BV and the technology and business process services unit of Frontica Business Solutions AS are likely to benefit the company.
Also, Cognizant has been increasing its focus on high profit areas like professional consulting and business-process outsourcing, which is a big positive.
However, the company has been seeing some sluggishness of late in the healthcare and financial sector, which are its biggest markets. Moreover, in such a turbulent market, the company has to constantly fend off competition from peers like Accenture (ACN - Free Report) , Infosys (INFY - Free Report) and Wipro Ltd. (WIP - Free Report) .
Currently, Cognizant has a Zacks Rank #4 (Sell). A look at Cognizant’s past one year price performance shows that it has underperformed the Zacks categorized Business Software Services/BPO industry. Shares are down 0.48% compared with 1.93% gain witnessed in the overall industry.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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In this latest Special Report, Zacks’ Aggressive Growth Strategist Brian Bolan explores a full-blown technological breakthrough in the making – autonomous cars. He also spotlights 8 stocks with tremendous gain potential to feed off this phenomenon. Click to see the stocks right now >>