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Cognizant, the Nasdaq-listed information technology services company, has marginally raised its revenue forecast for 2014, on the back of better performance in the North American market and the financial services division. The company also sounded quite upbeat about the overall demand environment.
The US-headquartered company, which competes fiercely with Indian IT services majors such as Tata Consultancy Services and Infosys, said it was expecting its full-year revenue for 2014 to be $10.13-10.16 billion, a growth of 14.7-14.9 per cent. This is closer to the upper end of sectoral body Nasscom’s growth expectations of 13-14 per cent for the year, though lower than Cognizant’s 2013 growth of 20.3 per cent.
For the quarter ended September, Cognizant showed a rise of 11.3 per cent in net profit to $355.6 million when compared with the corresponding quarter last year. Revenue went up 11.9 per cent to $2.58 bn on a yearly basis. Compared with the trailing quarter, the net profit declined 4.3 per cent and revenues grew 2.5 per cent.
“Our overall demand environment remains strong and our results this quarter highlight that we are competing, winning and executing transformational engagements for clients in various industry segments globally,” said Gordon Coburn, president.
“Cognizant modestly beat (previously reduced) 3Q14 revenue expectations and its 4Q14 revenue guide was modestly above recent consensus, so the numbers are positive in that sense,” equity research firm Citi research said in a note. “Attention should now shift to what the FY15 expectation might be, and that conversation is significantly affected by the company’s recent healthcare moves,” it added.
On the negative side, Cognizant saw a 170 basis point decline in its operating margin to 17.7 per cent, primarily on account of expenses towards the annual pay rise it effected during the quarter.
“Revenue growth was slightly ahead of our revised forecast and, as expected, non-GAAP operating margins were within our target range of 19-20 per cent as we absorbed the impact of annual wage increases during Q3,” said Karen McLoughlin, chief financial officer. She said the balance sheet remained strong as cash and short-term investments rose during the quarter by almost $500 million to $4.6 billion. “Later this quarter, we anticipate utilising $1.7 bn of this cash, in addition to $1 bn of floating rate debt through a syndicated term loan, to fund the previously announced acquisition of TriZetto," she added.
The growth was well-supported by demand from North America, from where the company got 77 per cent of its revenue. North America grew 2.7 per cent on a sequential quarter basis. In Britain, the company’s business grew 4.4 per cent on a lower base. However, in the rest of the Europe, the company reported a 2.6 decline in revenue.
“There is a tremendous opportunity in the marketplace as the advent of new digital technologies, global economic pressures, and an evolving regulatory environment force businesses across all industries to change and adapt faster than ever before,” said Francisco D’Souza, chief executive officer.
