Cognizant reports strong Q3, sees flat IT spending ahead

Cognizant's third quarter results showed gains courtesy of new services. The outsourcing company also said its clients are planning for flat IT budgets for 2013 with an emphasis on global delivery models.
Written by Larry Dignan, Contributor on

Cognizant reported strong third quarter results and said its fourth quarter appears to be on target. The company added that its clients expect flat IT spending in 2013, but are increasingly going to global service delivery models.

The outsourcing company reported third quarter earnings of $276.9 million, or 91 cents a share, on sales of $1.89 billion, up 18.2 percent from the same quarter a year ago. Non-GAAP earnings were 97 cents a share.

Wall Street was looking for earnings of 87 cents a share on revenue of $1.88 billion for Cognizant's third quarter.

As for the outlook, Cognizant projected fourth quarter earnings of 91 cents a share (97 cents a share non-GAAP) on revenue of at least $1.94 billion. That outlook was in line with expectations. The company has weathered appreciation of the Indian Rupee well courtesy of a hedging program. A strong Rupee relative to the U.S. dollar means Indian outsourcing companies face higher costs.


In a statement, Cognizant CEO Francisco D'Souza said the company should be able to deliver revenue growth of at least 20 percent in 2012.

Gordon Coburn, president of Cognizant, noted that the company saw solid growth across services and regions. Cognizant has launched new consulting, business process outsourcing and infrastructure services.

For 2012, Cognizant projected revenue of at least $7.34 billion, up 20 percent from a year ago, with GAAP earnings of $3.42 a share.

On a conference call with analysts, D'Souza said that the company saw better-than-expected performance from its banking and Europe business. He added:

For several quarters, we have been speaking of the dual mandate with which we see our clients grappling. The dual mandate refers to the fact that clients need to drive effective and efficiency on the one hand as they cope with economic pressures and they need to invest in innovation and growth on the other hand as stake holders increase ever demanding digital experiences based on new technologies.

Cognizant's third quarter revenue growth narrowly bested Wipro. Wipro reported fiscal second quarter earnings of $302 million on revenue of $2.01 billion, up 17 percent from a year ago. Wipro also announced plans to focus on its IT services business as it sheds other non-core units.

Infosys' second quarter revenue growth was 2.9 percent from a year ago. The company reported fiscal second quarter earnings of $431 million on revenue of $1.8 billion.


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