Cognizant Q1 net up 26% to $557 mn

Revenue stood at $3.55 bn, sticking to the higher end of the company's guidance

IT services major Cognizant today posted a 26 per cent increase in net profit at $557 million for the quarter ended March 31, 2017.

Cognizant's net profit stood at $441 million in the first quarter of 2016.

Cognizant Technology Solutions has declared its first quarterly cash dividend of $0.15 per share, after it has agreed with activist investor Elliott Management to issue dividend and announce share purchase programme. The company has posted a growth in tune with its guidance for the quarter ended March 31, 2017, with a revenue growth of 10.74% to $3.55 billion as compared to $3.20 billion during the same period a year ago. 

The company has declared its initial quarterly cash dividend of $0.15 per share to Cognizant Class A Common Stock for shareholders of record at the close of business on May 22, 2017. The dividend will be payable on May 31, 2017.

Besides, Cognizant said that its move to realign the business to accelerate its shift to high value digital transformation work while reassessing less profitable opportunities, is to improve its non-GAAP operating margin to 22% in calendar year 2019 as it continue to grow its revenue.

“We delivered solid results in the first quarter and continued to build our digital solutions portfolio, expand our skills, and enhance our engagement with clients,” said Francisco D’Souza, Chief Executive Officer of Cognizant. 

“We’re making good progress in accelerating Cognizant’s shift to digital services and solutions to create value for clients and shareholders, positioning us well to achieve both our revenue and margin targets for this year,” he added.

For the full year 2017, the company has maintained the guidance of $14.56 billion to $14.84 billion revenue.

For the next quarter ending June, 2017, the company has said that its revenue is expected to be in the range of $3.63 billion to $3.68 billion. 

It has said that the Accelerated Share Repurchase (ASR) periods are scheduled to end during or prior to the third quarter of 2017. The company, in March 2017, has entered into Accelerated Share Repurchase agreements (ASR), with certain financial institutions under our existing stock repurchase authorisation. 

“We are pleased to initiate our enhanced capital return program, as previously committed to our shareholders,” said Karen McLoughlin, Chief Financial Officer. 

“Expanding our share repurchase program and initiating a quarterly dividend reflect our ability to generate strong cash flows and confidence in the long term strength of our business,” added the official.

As part of the realignment, the company is planning to improve utilisation, optimise its pyramid structure and talent supply chain management to better align resourcing with client demand, simplify its business unit overhead structure and leverage its corporate function spend more effectively. 

"This realignment is part of our plan to improve our non-GAAP operating margin to 22% in calendar year 2019 while continuing to drive revenue growth," said the company. During the quarter ended March 31, 2017, the company has incurred severance costs related to the realignment and advisory fees related to non-routine shareholder matters and to the development of its realignment and return of capital programmes, said the company. The company expects to incur the majority of the total costs related to the realignment program in 2017. 

It may be noted that the company, in February this year, announced it would return $3.4 billion to shareholders over the next two years, though share repurchases and dividends. At the end of this repurchase, it would have returned $5 billion to shareholders. 

The share repurchase programme comes after Elliott Management disclosed last year that it holds 4% stake in Cognizant. It urged the company to shake up its board, to reconsider a share-repurchase programme, including dividends, to improve the share price of the company.