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Genpact (G) Down 1.1% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Genpact (G - Free Report) . Shares have lost about 1.1% in that time frame, outperforming the S&P 500.

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

Genpact Q3 Earnings Surpass Estimates, Revenues Miss

Genpact reported mixed third-quarter 2018 results, wherein earnings surpassed the Zacks Consensus Estimate but revenues missed the same.

Adjusted earnings per share of 48 cents outpaced the consensus mark and the year-ago figure by 2 cents. The bottom line was driven by a positive impact of 3 cents from higher operating profits and a penny from higher foreign currency exchange re-measurement gains, which were, however, partially offset by a tax impact of almost 3 cents due to the U.S. tax laws.

Revenues came in at $747.97 million, which lagged the consensus estimate by $8.1 million but improved 5.5% year over year on a reported basis and 6% on a constant-currency basis. The top line was driven by strong growth in the company’s high-tech and life sciences verticals and contributions from CPG, manufacturing and healthcare.

Revenues in Detail

Total BPO revenues (83% of total revenues) increased 7% year over year to $623 million. Total IT revenues (17% of total revenues) of $125 million remained flat year over year.

Global Client(91% of total revenue) revenues climbed 7% year over year on a reported basis and 8% on a constant-currency basis to $683 million.

Under Global Client, Global Client BPO revenues of $586 million improved 8% year over year on a reported basis and 9% on a constant-currency basis. Global Client IT revenues grew 2% year over year to $98 million.

General Electric (GE)revenues of $65 million declined 11% year over year. It accounted for 9% of total revenues.

GE BPO revenues declined 13% year over year to $37 million. GE IT revenues of $27 million decreased 7% from the year-ago quarter number.

Operating Results

Adjusted income from operations totaled $124.19 million, up 7.1% year over year. Adjusted operating income margin increased to 16.6% from 16.4% in the year-ago quarter.

Selling, general & administrative (SG&A) expenses amounted to $168.01 million, down 2.3% year over year. As a percentage of revenues, SG&A expenses were 22.5% compared with 24.3% in the prior-year quarter.

Balance Sheet and Cash Flow

Genpact exited the third quarter with cash and cash equivalents of $401.23 million compared with $333.90 million at the end of the previous quarter. Long-term debt (less current portion) totaled $983.88 million compared with $987.31 million at the end of second-quarter 2018.

The company generated $153 million of cash from operating activities in the reported quarter. Capital expenditures, as a percentage of revenues, came in at 5.2%.

Genpact returned almost $14 million to its shareholders through dividend payments (quarterly dividend of 7.5 per share).

Guidance

For 2018, Genpact continues to expect revenues in the range of $2.95-$3.01 billion, which indicates year-over-year growth of almost 8-10% both on a reported and constant-currency basis. Notably, the Zacks Consensus Estimate of $2.98 billion is in line with the midpoint of the guided range.

Global Client revenues are expected to register 9.5-11.5% growth, both on a reported and constant-currency basis. Adjusted operating income marginis anticipated to be around 15.8%. Effective tax rate is expected to be at the lower end of the 21-22% range.

Adjusted earnings are projected to be at the higher end of the previously guided range of $1.72-$1.76 per share.Capital expenditure for the full year is expected to lie between 3% and 3.5%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

Currently, Genpact has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

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

Outlook

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




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