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Genpact (G) Surpasses Earnings and Revenue Estimates in Q2

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Genpact Limited (G - Free Report) reported better-than-expected second-quarter 2017 results.

Non-GAAP earnings (including share based compensation) of 41 cents per share beat the Zacks Consensus Estimate by 10 cents and were up 24.2% year over year. Revenues of $671 million beat the consensus mark by 4.7%, increasing 6.4% from the year-ago quarter.

Strong results were driven by growth of revenues from mid-teen global client BPO coupled with balanced performance across most of the targeted verticals and service lines of the company.

The company is witnessing mid-teen global client BPO growth over the last three years. It is a dominant name in the BPO services market based on domain expertise in business analytics, digital and consulting. Genpact is also rapidly gaining popularity among customers in emerging technologies like Blockchain and Industrial Internet of Things (IoT).

The company’s focus on integrating process, analytics and digital technologies along with deep domain expertise is helping it to win customers on a regular basis.

These positives have led to an 30.6% surge in its shares on a year-to-date basis, significantly outperforming the industry’s 1.5% rally.

Revenue Details

Global clients (91% of total revenue) revenues increased 14% (15% at constant currency) to almost $608 million.

The increase was driven by strength across industry verticals – banking, manufacturing, life sciences, insurance, CPG and high-tech, that in turn helped Global client BPO revenues to jump 16% (18% at constant currency) to $511 million.

Genpact Limited Price, Consensus and EPS Surprise

Global Client IT revenues were up 2% year over year to $97 million, driven by stabilizing investment banking industry. The industry has been facing challenging business conditions over the past several quarters.

Revenues from General Electric (GE) fell 34% to roughly $63 million (9% of total revenue) mainly due to phase-out of work related to GE Capital divestitures.

BPO revenues (83% of total revenues) increased 9% year over year to $556 million. The growth was mainly driven by strength across Genpact’s most of the targeted verticals, service lines and geographies and strong transformational services.

However, GE BPO revenues were down 36% year over year to $45 million. IT revenues were also down 5% year over year to $114 million. GE IT revenues decreased 29% over year to $18 million.

Operating Details

Gross margin contracted 110 basis points (bps) from the year-ago quarter to 38.1%. Selling, general & administrative (SG&A) expense also decreased 120 bps to 25%.

Non-GAAP operating margin (including stock based compensation) expanded 170 bps from the year-ago quarter to 13.6%.

Balance Sheet & Share Repurchase

As of Jun 30, 2017, cash & cash equivalents were $441.1 million compared with $388.1 million as of Mar 31. The company has a long-term debt of $1026 million.

The company generated cash flow of $115.3 million from operating activities and spent about $23.5 million on dividends.

Guidance

For full-year 2017, revenues are now anticipated in the range of $2.63–$2.7 billion. Net foreign exchange adverse impact is now expected to be approximately $33 million.

Global Client revenues for 2017 are now expected to grow approximately 6% to 9% on a constant currency basis.

Non-GAAP operating income margin is expected to be 15.7%. Earnings are anticipated to be in the range of $1.53–$1.57 per share.

Zacks Rank & Key Picks

Genpact currently has a Zacks Rank #4 (Sell).

Better-ranked stocks in the broader sector include Alibaba (BABA - Free Report) , Lam Research Corporation (LRCX - Free Report) and MaxLinear (MXL - Free Report) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term expected earnings per share growth rate for Alibaba, Lam Research and MaxLinear are projected to be 29%, 17.2% and 17.5%, respectively.

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