Why Is Genpact (G) Up 0.3% Since Last Earnings Report?

It has been about a month since the last earnings report for Genpact (G). Shares have added about 0.3% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Genpact due for a pullback? 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 Q1 Earnings and Revenue Estimate

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

Adjusted earnings per share of 43 cents outpaced the consensus mark by 2 cents and increased 10% year over year. The bottom line was driven by a positive impact of 10 cents from higher operating profits, partially offset by a foreign exchange balance sheet remeasurement loss of a penny, tax impact of 2 cents, and higher net interest expense of a penny.

Revenues amounted to $809 million, which beat the consensus estimate by $46 million and improved 17% year over year on a reported basis and 19% on a constant-currency (cc) basis. The top line was driven by strong growth in the company’s High Tech, consumer goods and retail and industrial manufacturing verticals.

Revenues in Detail

Total BPO revenues (84% of total revenues) increased 19% year over year to $681 million. Total IT revenues (16% of total revenues) came in at $128 million, up 11% year over year. Global Clients (87% of total revenue) revenues climbed 11% year over year on a reported basis and 12% at cc to $700 million. Global Client BPO revenues of $605 million improved 12% year over year on a reported basis and 14% at cc. Global Client IT revenues grew 5% year over year to $95 million. General Electric (NYSE:GE) revenues of $109 million increased 88% year over year. It contributed 13% total revenues. GE BPO revenues improved 126% year over year to $76 million. GE IT revenues of $33 million increased 35% from the year-ago quarter’s number.

Operating Results

Adjusted income from operations totaled $122 million, up 25% year over year. Adjusted operating income margin increased to 15% from 14.1% in the year-ago quarter. Selling, general & administrative (SG&A) expenses amounted to $191.4 million, up 11.9% year over year. As a percentage of revenues, SG&A expenses were 23.7% compared with 24.8% in the prior-year quarter.

Balance Sheet and Cash Flow

Genpact exited the first quarter with cash and cash equivalents of $325.4 million compared with $368.4 million at the end of the previous quarter. Long-term debt (less current portion) totaled $966.9 million compared with $975.6 million at the end of fourth-quarter 2018. The company used $5.4 million of cash in operating activities in the quarter. Capital expenditures were $14.1 million. Genpact returned almost $16 million to shareholders through dividend payment in the quarter.

Guidance

Genpact reiterated its 2019 guidance. It continues to expect revenues in the range of $3.33-$3.39 billion, which indicates year-over-year growth of almost 11-13% on a reported basis and 12-14% at cc. The Zacks Consensus Estimate is pegged at $3.38 billion. Global Client revenues are expected to register 9.0-10.5% growth on a reported basis and 10.0-11.5% rise at cc. Adjusted operating income margin is anticipated to be around 16%. Adjusted earnings are projected between $1.96 and $2.00. The Zacks Consensus Estimate is pegged at $1.99.

How Have Estimates Been Moving Since Then?

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

VGM Scores

At this time, Genpact has a poor Growth Score of F, however its Momentum Score is doing a lot better with a B. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. 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 this revision indicates a downward shift. Notably, Genpact has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.