Cognizant profit tops estimates on demand from Europe

Indian employees at a call centre provide service support to international customers, in Bangalore March 17, 2004. REUTERS-Sherwin Crasto-Files
Workers are seen at their workstations on the floor of an outsourcing centre in Bangalore, February 29, 2012. REUTERS-Vivek Prakash-Files

1 of 2. Indian employees at a call centre provide service support to international customers, in Bangalore March 17, 2004.

Credit: Reuters/Sherwin Crasto/Files

By Sayantani Ghosh and Sruthi Ramakrishnan

Thu Feb 7, 2013 8:16pm IST

REUTERS – IT services company Cognizant Technology Solutions Corp’s (CTSH.O) quarterly profit modestly beat estimates, boosted by a jump in demand from Europe after quarters of tepid growth in business from the region.

The company’s shares rose 2 percent to $77.99 in premarket trading.

European companies have been outsourcing more in recent months as instability in the region forces them to restructure and cut costs.

Rivals Tata Consultancy Services Ltd (TCS.NS) and Infosys Ltd (INFY.NS), India’s top two software services providers, reported better-than-expected results last month, helped by client additions and accelerated IT spending by existing customers.

Thirteen new deals in Europe boosted Infosys’ revenue in the quarter ended December 31 but TCS termed Continental Europe a “soft point”.

Cognizant said revenue from its European business rose 19 percent in the fourth quarter, after three consecutive quarters of slow growth.

The company has been facing slowing revenue growth from North America, which accounts for the bulk of its revenue.

Revenue growth in North America slipped below the 20 percent mark, continuing the downward trend from past quarters.

Adding to this, economic uncertainty in the United States in the fourth quarter due to the presidential elections, the approaching “fiscal cliff” and superstorm Sandy postponed technology spending.

TEPID OUTLOOK

The company forecast full-year profit below analysts’ estimates. But analysts said there was little need for concern.

“Our take is that CTSH is probably being conservative at the start of the year, instead of guiding to Street estimates, which do not include acquisition revenues,” BMO Capital analysts said in a note.

The conservative forecast, which many analysts had expected, comes after the company was forced to cut its 2012 outlook in May for the first time in nearly four years.

Net income rose 16 percent to $278.8 million, or 92 cents per share, in the fourth quarter, from $240.1 million, or 78 cents per share, a year earlier.

Total revenue rose 17 percent to $1.95 billion. Revenue from Europe, which accounts for nearly a fifth of the company’s total revenue, rose 19 percent to $326.2 million.

Analysts on average had expected earnings of 91 cents per share on revenue of $1.95 billion, according to Thomson Reuters I/B/E/S.

The company, founded in 1994 as a captive unit of Dun & Brad Street (DNB.N) in India, has not missed analysts’ profit estimates for 16 quarters.

It forecast first-quarter earnings of 92 cents per share on revenue of at least $2 billion.

The company, which has said it expects healthcare to grow slower than the company average in 2013, forecast at least $3.95 per share in profit for 2013 and revenue of at least $8.6 billion.

Analysts expected earnings of 93 cents per share, on revenue of $2 billion for the first quarter. For the full year, they were looking for a profit of $4.00 per share, on revenue of $8.58 billion

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