Infosys Technologies Ltd (INFY) reported third-quarter fiscal 2015 earnings per ADS from continuing operations of 46 cents, surpassing the Zacks Consensus Estimate of 43 cents by 7% and the year-ago earnings of 41 cents by 12.2%.
Quarterly results were primarily driven by strong volume growth as well as increased productivity and utilization. Further, the company has been undertaking cost-optimization initiatives along with attrition rates reduction efforts. Additionally, the company’s ‘renew and new’ strategy is benefiting its business.
Quarter in Details
Total revenue came in at $2,218 million, up 5.6% year over year. However, it fell short of the Zacks Consensus Estimate of $2,260 million. Revenues were negatively impacted by the strengthening U.S. dollar.
Infosys recorded an operating profit of $592 million compared with $526 million in the prior-year quarter, reflecting an increase of 12.5%. Meanwhile, operating margin expanded 170 basis points to 26.7% from 22% in the comparable prior-year quarter. Net profit after tax deductions came in at $522 million in the quarter, up 12.7% year over year.
Infosys witnessed high sales volume, client additions and significant deal wins in the quarter. The company added 59 new clients in total and notable among them is the strategic partnership with Deutsche Bank AG (DB).
Moreover, the company formed various collaborations with diverse entities like DreamWorks Animation, Tableau Software Partner and Stanford Graduate School of Business to drive growth in the quarter.
Geographical Segment Performance
Infosys reported strong growth in regions like North America and India. North America witnessed growth rates of 2.1% sequentially and 2.3% on a constant currency basis. India’s growth rate was 14% on a sequential basis and 16.7% on constant currency basis.
Europe reported a sequential decline of 2.1%, but the company’s growth on a constant currency basis was 1.9%. On the other hand, Rest of the world reported a decline of 2.3% sequentially, but growth of 3.4% on a constant currency basis.
Industry Segment Performance
Revenues in the Insurance, Banking and Financial services (“FSI”) segment grew 1.8% sequentially, while that in the Manufacturing segment (“MFG”) division improved 1.4%. Also, revenues in the Retail and Life Sciences (“RCL”) and Energy, Utilities, Communications & Services (“ECS”) divisions rose 1.1% and 1.9% year over year, respectively.
Other Financial Details
Infosys maintained a strong liquidity position with cash & cash equivalents of $5,080 million as of Dec 31, 2014, as against $4,331 million as of Mar 31, 2014.
Infosys has inflated its innovation fund from $100 million to $500 million. This move comes as part of the company’s efforts to enhance its global ecosystem of strategic partnership by investing in innovative firms related to automation, Internet of things, and collaboration and design sectors, among others.
Outlook Reiterated
Infosys reaffirmed its revenue guidance for fiscal 2015 in the range of 7–9% considering the exchange rates on Sep 30, 2014.
In Conclusion
Infosys has been consistently delivering better-than-expected results. The company reported an average earnings surprise of 8.3% in the past four quarters. The company’s expertise and core competence in consulting, IT services and business process management, backed by its Global Delivery Model, continue to benefit its financials. However, severe competition in the industry and adverse currency translations remain concerns for this Zacks Rank #4 (Sell) stock.
Some better-ranked stocks in the industry include EarthLink Holdings Corp. (ELNK) and Unisys Corporation (UIS). While EarthLink Holdings sports a Zacks Rank #1 (Strong Buy), Unisys holds a Zacks Rank #2 (Buy).
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