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Cognizant (CTSH) Q2 Earnings Beat Estimates, Revenues Up Y/Y

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Cognizant Technology Solutions Corp. (CTSH - Free Report) reported second-quarter 2018 non-GAAP earnings of $1.19 per share, which beat the Zacks Consensus Estimate of $1.10 and increased 28% from the year-ago quarter. The figure was better than management’s expectation of $1.09 per share.

Revenues of $4.01 billion missed the Zacks Consensus Estimate of $4.02 billion. Nevertheless, the figure increased 9.2% year over year driven by growth in all the four domains. The figure was within the guided range of $4-$4.04 billion.

The company adopted ASC 606 (new revenue standard), which positively impacted revenues by $31 million, income from operations by $38 million and earnings by 5 cents per share.

Quarter Details

Segment-wise, Financial services (36.7% of revenues), which includes insurance, banking and transaction processing, grew 4.5% year over year to $1.47 billion.

Healthcare (28.9% of revenues) grew 10.1% year over year to $1.16 billion. Top-line growth can be attributed to steady demand across payer clients and increasing interest in the company’s digital, analytics, cloud and virtualization solutions.

Products and Resources (21% of revenues) continued its growth momentum and improved 12.4% year over year to $840 million driven by growth in manufacturing and logistics clients.

Communications, Media and Technology (13.5% of revenues) were $541 million, up 15.8% from the year-ago quarter.

Region-wise, revenues from North America increased 7.6% year over year and represented 76.6% of total revenues. Europe revenues (17.2% of revenues) increased 19.2% from the year-ago quarter to $690 million. Rest of the World (6.2% of revenues) advanced 3.8% to $249 million.

Selling, general & administrative (SG&A) expenses, as a percentage of revenues, declined 110 basis points (bps) from the year-ago quarter to 20.1%.

Cognizant reported non-GAAP operating margin of 22%, which expanded 200 bps from the year-ago quarter.

In the quarter ended Jun 30, 2018, cash and cash equivalents (and short-term investments) were $4.25 billion, down from $4.83 billion reported as of Mar 31, 2018.


Guidance

For the third quarter of 2018, Cognizant expects revenues in the range of $4.06-$4.10 billion. Non-GAAP earnings are anticipated to be at least $1.13 per share. The Zacks Consensus Estimate for revenues and earnings is currently pegged at $4.12 billion and $1.14 per share, respectively.

For 2018, revenues are projected between $16.05 billion and $16.30.

Non-GAAP operating margin is expected to be roughly 21%. Non-GAAP earnings are projected to be at least $4.50 per share, up from the previous guidance of $4.47 per share.

The Zacks Consensus Estimate for revenues and earnings is currently pegged at $16.22 billion and $4.47 per share, respectively.

Zacks Rank & Stocks to Consider

Cognizant currently carries a Zacks Rank #3 (Hold).

Some other top-ranked stocks in the broader technology sector include Micron Technology (MU - Free Report) , Amazon.com, Inc. (AMZN - Free Report) and Apple Inc. (AAPL - Free Report) . While Micron and Amazon sport a Zacks Rank #1 (Strong Buy), Apple carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks Rank #1 stocks here.

Long-term earnings growth rate for Micron, Amazon and Apple is projected to be 8.2%, 26.5% and 10.9%, respectively.

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