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Genpact (G) Down 6.5% Since Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for Genpact Limited (G - Free Report) . Shares have lost about 6.5% in that time frame.

Will the recent negative trend continue leading up to its next earnings release, or is G due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Recent Earnings

Genpact reported better-than-expected results in first-quarter 2018.

Non-GAAP earnings of 39 cents per share increased 26% on a year-over-year basis. The figure surpassed the Zacks Consensus Estimate by a couple of cents.Revenues of $688.9 million increased 11% (up 9% on a constant currency basis) from the year-ago quarter. Revenues also steered past the Zacks Consensus Estimate of $682.2 million.

Quarter Details

Total BPO revenues (83% of total revenues) increased 12% year over year to $574 million. Total IT services revenues (17% of total revenues) were up 3% year over year to $115 million.

Global Client (92% of total revenue) revenues increased 14% (12% at constant currency) to $631 million driven by the Transformation services that grew at a mid-teen rate.

Global Client BPO segment revenues of $540 million recorded 17% (15% at constant currency) growth on the back of robust performance of industry verticals like insurance, banking and financial services, and high tech.

Global Client IT revenues were down 1% year over year to $91 million. The industry has been facing challenging business conditions over the past several quarters.

Revenues from General Electric (GE) represented around 8% of total revenues and fell 16% during the quarter to $58 million, primarily due to the decline in GE Capital business in 2017.  GE BPO revenues declined 31% year over year to $34 million. GE IT revenues of $24 million increased 19% from the year-ago quarter.

Adjusted income from operations during the quarter came in at $97.4 million. Operating margins came in at 14.1%, down 160 basis points (bps) year over year. Selling, general & administrative (SG&A) expenses totaled $171.1 million, up 6.3% year over year. As a percentage of revenues, SG&A expenses came in at 24.8%, compared with 25.8% in the year-ago quarter.

Balance Sheet & Dividend

Genpact ended the quarter with cash and cash equivalents of $504.5 million. The company generated $31 million in cash from operations in the quarter. Long-term debt totaled $1 billion at the end of the quarter. The company repurchased around 3.2 million shares during the quarter for $100 million. It also paid $12 million in dividends.

Guidance

For 2018, Genpact reiterated revenue, Global Client revenue and non-GAAP operating income margin guidance and lifted the adjusted earnings outlook. Revenues are anticipated in the range of $2.93-$3.00 billion.

Global Client revenues for 2018 are expected to grow approximately 9-11% on a constant currency basis as well as on a reported basis. Non-GAAP operating income margin is expected at around 15.8%.

Earnings are anticipated in the range of $1.72 to $1.76 per share compared with the previous band of $1.70-$1.74.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. There have been two revisions higher for the current quarter compared to four lower.

Genpact Limited Price and Consensus

 

Genpact Limited Price and Consensus | Genpact Limited Quote

VGM Scores

At this time, G has a poor Growth Score of F, however its Momentum is doing a lot better with a B. The stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Our style scores indicate that the stock is more suitable for momentum investors than value investors.

Outlook

Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. Notably, G has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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