Cognizant buoyed by avoiding disappointment

For some months now Cognizant Technology Solutions, the US company which operates mostly in India, has been providing stiff competition for the big names in Hindustani IT services.

But following a string of unexpectedly good earnings reports from the likes of Infosys and Wipro, Cognizant published its figures on Thursday. And this time, it’s not so far ahead.

The company recorded revenues of $1.95bn for the quarter ended in December, which is a 17.1 per cent year-on-year increase and exactly matches the average forecast in a Reuters poll of analysts. Net income for the quarter was $278.8m, up from $240.1m a year earlier.

The company added six new accounts in the quarter and took on a net 6,300 employees.

In a note to clients on Thursday, analysts at Prabhudas Lilladher wrote:

The performance for Tier-1 Indian IT companies has been more bunched, with Infosys and HCL Tech leading the way. We continue to expect the extent of outperformance by Cognizant to diminish as size and competition catches up with them. We expect Infosys to lead the growth trajectory.

Investors were untroubled, however. Cognizant’s shares were up 1.7 per cent by 5pm GMT on Thursday, to $77.11, outperforming the benchmark S&P 500 Index which had gained just 0.1 per cent to 1,512.12.

It seems Cognizant is drawing gain from others’ pain. With businesses in Europe forced to restructure in the economic downturn, many are turning to outsourcing. So, while Cognizant’s global revenues for the three months ending in December were up just 3 per cent quarter-on-quarter, revenues from Europe rose 7.8 per cent quarter-on-quarter to $326.2m.

Karen McLoughlin, chief financial officer, said on a conference call following the earnings report: “We finished the quarter with approximately $2.9bn of cash and short-term investments. We spent approximately $126m for capital expenditures during the quarter. During 2013, we expect our capital expenditures to total approximately $400m.”

Cognizant is making a conservative forecast for the 2013 calendar year, after the company was forced to revise its estimate for the 2012 calendar year downwards in May. The company says it expects minimum revenues of $8.6bn for the year ending December 2013, a 17 per cent increase year-on-year. That’s in the same region as a Reuters poll, which found analysts forecasting revenues of $8.58bn for 2013.

Related reading:
Cognizant: Indian IT’s new number two, FT
New generation of outsourcers rises in India, FT