Why Is Genpact (G) Down 0.8% Since Last Earnings Report?

It has been about a month since the last earnings report for Genpact (G). Shares have lost about 0.8% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Genpact due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Genpact Beats on Q2 Earnings and Revenue Estimat

Genpact delivered impressive second-quarter 2019 results, with earnings and revenues beating the Zacks Consensus Estimate.

Adjusted earnings per share of 49 cents outpaced the consensus mark by 2 cents and increased 20% year over year. Higher operating profit had positive impact of 11 cents on the bottom line. However, the upside was partially offset by negative impact of a penny each related to lower foreign exchange balance sheet remeasurement gains, higher net interest expense and higher effective tax rate.

Revenues amounted to $882 million, which beat the consensus estimate by $57 million and improved 21% year over year on a reported basis and 22% on constant-currency basis. The top line was driven by large deal ramps and ongoing transformation services wins.

Revenues in Detail

Total BPO revenues (84% of total revenues) increased 23% year over year to $743 million. Total IT revenues (16% of total revenues) came in at $139 million, up 13% year over year.

Global Clients (86% of total revenue) revenues climbed 15% year over year on a reported basis and 16% at cc to $760 million. Global Client BPO revenues of $659 million improved 16% year over year on a reported basis and 17% at cc. Global Client IT revenues grew 7% year over year to $101 million.

General Electric (NYSE:GE) revenues of $121 million increased 86% year over year. It contributed 14% of total revenues. GE BPO revenues improved 125% year over year to $84 million. GE IT revenues of $38 million increased 34%.

Operating Results

Adjusted income from operations totaled $136 million, up 24% year over year. Adjusted operating income margin increased to 15.4% from 15% in the year-ago quarter. Selling, general & administrative (SG&A) expenses amounted to $196 million, up 11% year over year. As a percentage of revenues, SG&A expenses were 22.3% compared with 24.2% in the prior-year quarter.

Balance Sheet and Cash Flow

Genpact exited the second quarter with cash and cash equivalents of $378 million compared with $325 million at the end of the previous quarter. Long-term debt (less current portion) totaled $959 million compared with $967 million at the end of the first quarter. The company generated $126 million of cash in operating activities in the quarter. Capital expenditures were $16 million. Genpact returned around $16 million to shareholders through dividend payment in the quarter.

Guidance

Genpact has raised its 2019 revenue and EPS guidance. Management guided revenues in the range of $3.46 to $3.5 billion, which is above the previous guidance of $3.33-$3.39 billion. Adjusted EPS is now projected between $2 and $2.02, compared with prior projection of $1.96 to $2.00. Global Client revenues are expected to register 9.5 growth on a reported basis and 10.5-12% rise at cc. The prior expectation was 9.0-10.5% growth on a reported basis and 10.0-11.5% rise at cc. Adjusted operating income margin is continued to be anticipated around 16%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision.

VGM Scores

At this time, Genpact has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions has been net zero. Notably, Genpact has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.