Infosys Limited (INFY - Free Report) reported better-than-expected fourth-quarter fiscal 2018 results. Moreover, revenues and earnings recorded year-over-year improvement.
The company reported earnings per share of 26 cents for the quarter, which topped the Zacks Consensus Estimate of 25 cents and also came ahead of the year-ago bottom-line figure of 24 cents per share.
Revenues increased 9.2% year over year to $2,805 million and beat the Zacks Consensus Estimate of $2,774 million. In terms of constant currency, revenues were up 6.4%.
Top-line growth can be attributed to lucrative client wins and impressive traction of new high growth services and software business. Notably, the company won 10 prominent deals during the quarter with a total contract value (TCV) of $905 million.
Management is optimistic about the performance of the financial services business that surged 4% year over year in the fourth quarter. The company is also positive about the digital services business and is planning to invest further in the domain for optimized efficiency.
Infosys’ investments in new services, particularly in Cloud Ecosystem, Big Data and Analytics, API and Micro services, Data and Mainframe Modernization, Cyber Security and IoT Engineering Services have been showing promising results.
Infosys’ operating profit rose 9.3% year over year to $693 million. Notably, the company’s operating margin increased 40 basis points (bps) sequentially to 24.7% with forex as a tailwind. Additionally, “reduction in on-site mix and other expenses” was a positive. Nevertheless, the company’s announcement of compensation revision of around 85% of the workforce effective Apr 1, with a higher variable pay and incentives has offset the gains partly.
However, management sounded positive about the lower attrition rate of the high performers that came down to 9.4% compared with 14.1% in the previous quarter.
As of Mar 31, 2018, Infosys had cash and cash equivalents of $3,041 million compared with $3,226 million recorded in the previous quarter.
In the quarter, the company successfully signed the Advance Pricing Agreement (“APA”) with the U.S. Internal Revenue Service (“IRS”). Per the terms of the agreement, “the Company and the IRS have agreed on the methodology to allocate revenues and compute the taxable income of the Company’s U.S. operations.”
On Mar 12, the company announced its intent to voluntarily delist its American Depositary Shares ("ADS") from the Euronext Paris and Euronext London exchanges.
Additionally, at the end of the quarter, after reviewing its portfolio of business, Infosys has initiated the process of looking for potential buyers for its subsidiaries Kallidus, Skava and Panaya.
Most recently, on Apr 13, Infosys announced that it has entered into a definitive agreement to acquire WongDoody Holding Company, Inc. The target which is a U.S. based consumer insights agency will be acquired for a total consideration of around $75 million, subject to regulatory approvals.
Fiscal 2018 Details
Infosys reported revenues of $10,939 million for fiscal 2018, registering 7.2% year-over-year growth and a 5.8% growth on a constant currency basis.
The company reported earnings per share of $1.10, including a “positive impact of $0.09 from Advance Pricing Agreement (APA) with the US IRS concluded earlier in the year.” The figure surged 17.8% from the previous year.
Concurrent with results of fourth-quarter of fiscal 2018, Infosys provided guidance for fiscal 2019. The company expects revenue growth in the range of 6-8% at constant currency. The figure is expected to rise between 7-8% in USD terms, based on the exchange rates as of Mar 31, 2018.
Management is extremely positive about the company’s business strength, loyalty of clients and trustworthiness of the employees. Infosys has been diligently following the “Renew New” program, which lays the blueprint of its long-term growth.
Moreover, management is enthusiastic about the application of artificial intelligence and automation to improve efficiency. Increasing the skill level of the employees and localization in the catered markets are also in the cards with opening of delivery centers, training centers and local hiring. The company is relying on a strong multi-industrial pipeline, spanning healthcare and insurance among others. Digital transformation and shift to cloud have also created growth prospects for the company.
However, unfavorable political climate in the United States and difficulties in adapting to the changing political climate in the region are a direct threat to this Zacks Rank #3 (Hold) company’s economical cost structure, which focuses on using its workforce on sites located abroad.
Stocks to Consider
Better-ranked stocks in the broader technology sector are Paycom Software, Inc. (PAYC - Free Report) , Western Digital Corp. (WDC - Free Report) and Applied Materials, Inc. (AMAT - Free Report) , all sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Long-term earnings growth rates for Paycom Software, Western Digital and Applied Materials are currently pegged at 24.75%, 19% and 13.26%, respectively.
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