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Infosys (INFY) Q2 Earnings Miss Mark, Revenues Top, Up Y/Y

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Infosys' (INFY - Free Report) second-quarter fiscal 2020 adjusted earnings of 13 cents per share inched up 0.2% year over year. However, the metric fell a penny short of the Zacks Consensus Estimate.

Meanwhile, revenues of $3.210 billion increased 9.9% year over year and also surpassed the Zacks Consensus Estimate of $3.203 billion. In terms of constant currency (CC), the same was up 11.4% as well.

Rise in large deal wins and fast-growing digital services remain key catalysts. Strong demand for its services in cloud, IoT, cyber security, data and analytics is a key driver. The company recorded double-digit growth in six of its seven business segments. Robust growth in Europe and the United States was also a tailwind.

Quarterly Details

Digital Revenues (38.3% of total) surged 36% year over year (38.4% at cc) to $1.23 billion while Core Revenues (61.7%) declined 18% (up 0.7% at cc) to $1.98 billion.

Geographically, North America and Europe revenues rose 11.9% and 14.6%, respectively, at cc. Rest of the World and India increased 1.91% and 17.9% each.

Segment wise, Communication achieved maximum growth of 19.2%. Energy, Utilities, Resources & Services, Hi Tech, Manufacturing, Life Sciences and Financial Services rose 19.1%, 11.7%, 16.9%, 10.9% and 10.3%, respectively. Retail recorded growth of 1.1%.

In the quarter under review, the company added 96 clients. It also inked 13 large deals with a total contract value (TCV) of $2.85 billion. Four of these were in Financial Services and Retail, two in Communications and one each in Energy, Utilities, Resources and Services plus Hi-Tech and Life Sciences segment. Geographically, six were from America, five from Europe and two from Rest of the World.

The company reported that its clients worth more than $100 million now add up to 27 compared with 23 a year ago.

Infosys Limited Price, Consensus and EPS Surprise

Infosys Limited Price, Consensus and EPS Surprise

Infosys Limited price-consensus-eps-surprise-chart | Infosys Limited Quote

Margin

Gross profit rose 3.2% year over year to $1.07 billion. Gross margin shrank nearly 220 basis points (bps) on a year-over-year basis to 33.3%.

The company’s operating income grew 0.6% year over year to $696 million. Operating margin shriveled 200 bps to 21.7%.

Increases in utilization, onsite mix, employee pyramid improvement and other cost efficiencies were positive.

Liquidity

As of Sep 30, 2019, Infosys had cash and cash equivalents of $2,324 million compared with $2,666 million sequentially.

Operating cash flow in the quarter under discussion was $522 million while free cash flow was $397 million.

Outlook

In fiscal 2020, revenues are expected to grow in the 9-10% at cc, indicating a rise from 8.5-10% predicted earlier.

Operating margin is still anticipated between 21% and 23%.

Zacks Rank and Stocks to Consider

Currently, Infosys has a Zacks Rank #3 (Hold). A few better-ranked stocks in the broader technology sector are Synopsys (SNPS - Free Report) , Alteryx (AYX - Free Report) and Five9 (FIVN - Free Report) , each flaunting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Synopsys, Alteryx and Five9 is currently projected to be 12%, 17.6% and 10%, respectively.

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