Cognizant (CTSH) Q1 Earnings Beat, Trims '18 Revenue Outlook

Cognizant Technology Solutions Corp. (NASDAQ:CTSH) delivered first-quarter 2018 non-GAAP earnings of $1.06 per share, which beat the Zacks Consensus Estimate by a penny and surged 26.2% from the year-ago quarter. The figure was better than management’s expectation of $1.04 per share.

Revenues of $3.91 billion surpassed the Zacks Consensus Estimate and improved 10.3% year over year driven by growth in all the four domains. The figure was within management’s guidance of $3.88-$3.92 billion.

The company adopted ASC 606 (new revenue standard), which positively impacted revenues by $21 million, income from operations by $29 million and earnings by 4 cents per share.

Quarter Details

Segment-wise, Financial services (37.3% of revenues), which includes insurance, banking and transaction processing, grew 6.2% year over year to $1.46 billion. The segment was driven by growth in insurance companies and mid-tier banks, which mitigated the softness arising from legacy businesses.

Healthcare (28.7% of revenues) grew 11.8% year over year to $1.12 billion. Top-line growth can be attributed to steady demand across payer clients and increasing interest in the company’s digital, analytics, cloud and virtualization solutions.

Products and Resources (21% of revenues) continued its growth momentum and improved 11.4% year over year to $821 million driven by growth in manufacturing and logistics clients.

Communications, Media and Technology (13% of revenues) were $494 million, up 19% from the year-ago quarter.

Digital revenues grew 27% year over year and was 29% of total revenues in the reported quarter. Moreover, Cognizant added seven new strategic customers during the quarter, bringing total to 364.

Further, Consulting & Technology services revenues were up 10.7% year over year. Moreover, outsourcing services revenues increased 9.7% from the year-ago quarter.

Additionally, roughly 39% of Cognizant’s revenues were from fixed price contracts.

Region-wise, revenues from North America increased 7.8% year over year and represented 76% of total revenues. Europe revenues (17.5% of revenues) surged 22.4% from the year-ago quarter to $684 million. Rest of the World (6.5% of revenues) advanced 11.9% to $253 million.

Selling, general & administrative (SG&A) expenses, as a percentage of revenues, declined 120 basis points (bps) from the year-ago quarter to 18.2%. Headcount increased by 1,400 sequentially to 261,400.

Cognizant reported non-GAAP operating margin of 20.3%, which expanded 140 bps from the year-ago quarter.

In the quarter ended Dec 31, 2017, cash and cash equivalents (and short-term investments) were $4.83 billion, up from $5.06 billion reported as of Dec 31, 2017.

Guidance

For the second quarter of 2018, Cognizant expects revenues in the range of $4-$4.04 billion. Non-GAAP earnings are anticipated to be at least $1.09 per share. The Zacks Consensus Estimate for revenues and earnings are currently pegged at $4.02 billion and $1.12 per share, respectively.

For 2018, revenues are projected between $16.05 billion and $16.30 billion slightly narrower than the previous guidance of $16.00-$16.30 billion.

Non-GAAP operating margin is expected to be roughly 21%. Non-GAAP earnings are projected to be at least $4.47 per share, down from previous guidance of $4.53 per share.

The Zacks Consensus Estimate for revenues and earnings are currently pegged at $16.21 billion and $4.53 per share, respectively.

Cognizant remains on track to achieve 22% non-GAAP operating margins in 2019.

Zacks Rank & Other Stocks to Consider

Cognizant has a Zacks Rank #2 (Buy).

Autohome (NYSE:ATHM) , Nice (NASDAQ:NICE) and Etsy (NASDAQ:ETSY) are other stocks worth considering in the broader computer and technology sector. While Etsy carries a Zacks Rank #2, both Autohome and Nice sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Both Autohome and Etsy are set to report their first-quarter 2018 results on May 8. Nice is slated to report first-quarter 2018 results on May 10.

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