Infosys Limited (INFY - Free Report) has braved formidable odds like contracted IT spending and unfavorable political climate in the U.S. to score an earnings beat in first-quarter fiscal 2018.
The company reported earnings per American Depository Share (“ADS”) of 24 cents for the quarter, which topped the Zacks Consensus Estimate by a penny and was up 5.8% on a year-over-year basis. The bottom line benefited from a modest top-line performance and diligent operational execution.
Revenues increased 6% year over year to $2,651 million and topped the Zacks Consensus Estimate of $2,629 million. Moreover, in terms of constant currency, revenues were up 6.3%.
Top-line growth was largely supported by lucrative client wins and impressive traction of new high growth services and software business. The company’s Renew New Strategy is proving to be a solid growth driver, helping in earning more clients. During the reported quarter, Infosys added a total of two active clients.
Infosys’ operating profit rose 6.0% year over year to $638 million. Strong focus on operational improvement helped maintain the company’s operating profits, despite strong headwinds.
Renew New Strategy Progresses Well
Infosys has been diligently following the “Renew New” program, which lays the blueprint of its long-term growth. 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.
During the reported quarter, Infosys continued to renew traditional services and rolled out others in areas such as Cloud Ecosystem, Big Data and Analytics, API and Micro Services, Cyber Security, and IoT Engineering Services. It also launched some software-led offerings.
Under the “Renew” initiative, Infosys helped clients renew traditional IT services and infrastructure. It worked closely with clients, including Edgewell Personal Care, PrimeRevenue and Myer.
Meanwhile, the company has been recording robust momentum in software and services business under the “New” initiative. Skava, which has expanded its footprint beyond retail, and Panaya continued to witness robust momentum, thus stoking top-line growth. Also, during the quarter, Infosys launched Boundaryless Data Lake, an offering powered by the Information Grid Solution on Amazon Web Services (AWS).
During the quarter, the company launched its integrated artificial intelligence (AI) platform, Nia, to accelarate the pace of adoption of the technology. Currently, Nia has over 160 engagements across 70 clients. The company remains bullish about its prospects, going forward.
Liquidity & Dividend
As of Jun 30, 2017, Infosys had cash and cash equivalents of $3,579 million compared with $3,489 million recorded as of Mar 31, 2016.
Concurrent with its fiscal first-quarter results, Infosys hiked its fiscal 2018 guidance. Buoyed by solid client wins, resilient margin growth and an uptick in spending, the company now forecasts revenue growth in the range of 7.1–9.1%, up from the earlier guided range of 6.1–8.1%. Both the figures are in USD terms, based on the exchange rates as of Jun 30, 2017.
Infosys entered fiscal 2018 on a solid note with both bottom- and top-line beats. The company’s well structured “Renew New” strategy has proven to be a consistent profit churner. Infosys’ lucrative client wins and solid operational execution are expected to drive growth for the rest of the fiscal year. Also, its partnership with leading technology providers like Microsoft Corporation (MSFT - Free Report) and Amazon.com, Inc. (AMZN - Free Report) are anticipated to unlock fresh growth opportunities.
Despite these positives, the Zacks Rank #4 (Sell) company’s growth momentum may be thwarted on account of unfavorable political climate in the U.S. Over the past few months, Infosys has been struggling to adapt itself to the changing political climate in the region. This is a direct threat to the company’s economical cost structure, which focuses on using its workforce on sites located abroad.
Last month, the company had to pay a $1 million settlement in relation to the violation of U.S. visa requirements for foreign workers. The foreboding sentiment, which was strongly reflected in the annual filing of the company reported last month, signals tough times ahead.
A better-ranked stock in the industry is Applied Optoelectronics, Inc. (AAOI - Free Report) . This Zacks Rank #1 (Strong Buy) company has an outstanding positive average earnings surprise of 118.3% for the trailing four quarters, beating estimates all through. You can see the complete list of today’s Zacks #1 Rank stocks here.
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