Leading IT services provider, Cognizant Technology Solutions Corp. (CTSH), reported third-quarter 2014 earnings of 66 cents per share, which beat the Zacks Consensus Estimate as well as the year-ago quarter’s earnings of 59 cents.
Quarter Details
Revenues rose 11.9% year over year to $2.58 billion, surpassing the Zacks Consensus Estimate of $2.57 billion. The strong year-over-year growth was primarily driven by solid performance across all the segments.
The Financial Services segment (41.9% of revenues), that includes insurance, banking and transaction processing, grew 13.4% year over year to $1.08 billion. Healthcare (25.4% of revenues) reported year-over-year growth of 9.2% to reach $655.4 million in the quarter.
Manufacturing/Retail/Logistics (20.7% of revenues) rose 8.6% year over year to $533 million. Other revenues (12% of revenues), which include sales from service-oriented industries like communications, media and high tech, were $310.3 million, up 19% from the year-ago quarter.
Region-wise, revenues from North America increased 11.1% year over year and represented 76.8% of revenues. Europe contributed 18.3% to the revenues, which increased 13.9% year over year. The remaining 4.9% of revenues came from the Rest of the World as sales rose 18.2% from the year-ago quarter.
Margins
Selling, general & amortization (SG&A) expense as a percentage of revenues grew 40 basis points (bps) from the year-ago quarter to 19.6%. Depreciation & Amortization rose 11.7% year over year. Adjusted Income from operations increased 6.8% to $472.4 million but operating margin contracted 90 bps from the year-ago quarter to 18.3%, possibly due to higher expenses.
Balance Sheet
Cognizant exited the third quarter with cash and cash equivalents of $2.62 billion, significantly up from $2.21 billion at the end of 2013.
Guidance
For the fourth quarter of 2014, the company expects revenues in the range of $2.61 to $2.64 billion. Earnings are expected to be approximately 63 cents per share, much better than the Zacks Consensus Estimate of 59 cents.
For full-year 2014, Cognizant expects revenues in the range of $10.13 to $10.16 billion. The company forecasts earnings of at least $2.57 per share for the full year, higher than the Zacks Consensus Estimate of $2.35.
Our Take
Cognizant, which competes with the likes of Accenture (ACN), Infosys (INFY) and Wipro Ltd. (WIT), remains well diversified in key verticals and emerging markets of social, mobile, analytics and cloud, which will continue to boost its top line. In addition, Cognizant’s customer deal wins, which are expected to deliver approximately $200 million incremental revenues in 2015, remain a significant growth driver.
Currently, Cognizant has a Zacks Rank #2 (Buy).
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