Cognizant cuts full-year growth forecast after weak quarterly results

Cognizant cuts full-year growth forecast after weak quarterly results
Photo Credit: Photo Credit: VCCircle
3 May, 2019

Software services and consultancy major Cognizant has reported lower-than-expected revenue growth and a decline in net income during the first quarter of 2019, disappointing investors and analysts.

The Chennai and New Jersey-based IT firm also revised its full-year growth target to 5% from the earlier projected 9%, after the lower-than-expected performance in Q1.

The US-registered and Nasdaq-listed company reported a 15% decline in its net profit, which stood at $441 million as compared to the $520 in the same quarter of the previous year. Its net profit slipped drastically by 32% sequentially as compared with the last quarter of 2018.

“Cognizant's growth and performance in the quarter leaves room for improvement. While I am encouraged by our client centricity, our employees' winning spirit and our innovation, we are not yet delivering against the market opportunity," said Brian Humphries, chief executive officer of Cognizant, adding that the company was committed to strengthening its execution while investing in growth and driving shareholder value. 

Cognizant also saw its operating margin decline to 13.1% in the quarter as compared with the 17.7% it had reported in the first quarter of 2018. However, the company attributed the decline to the provisioning of the $117 million it had made in the quarter to pay Indian authorities after a Supreme Court ruling.

Cognizant reported a 5.1% growth in revenue for the first quarter of 2019, which stood at $4.11 billion as against the $3.9 billion the company had reported in the first quarter of 2018.

“Our revised full-year outlook reflects the first quarter underperformance and expectations of slower growth in financial services and healthcare for the remainder of 2019," said Karen McLoughlin, chief financial officer at Cognizant.

The lower growth for the firm comes in the backdrop of Indian IT services companies registering fairly good quarterly growth during the January-March period. This is quite a reversal of fortunes for the company that had outpaced its Indian peers during most part of the last decade.

The financial services segment, which contributes to almost 35% of the company's revenue, saw a decline of 1.7% during the quarter, while the healthcare segment that contributes to 28% of the company's revenue posted a tepid growth of 4%.

“Delivering on the medium-term goals laid out at the analysts’ day seems challenging. Turnaround themes have their set of challenges. Cognizant seems to be going through one with broad-based slippages," said Kawaljeet Saluja, head of research at Kotak Institutional Equities, in an analyst report this morning.

Cognizant’s employee headcount rose to 285,800 at the end of the first quarter. It had 261,400 employees at the end of the first quarter of 2018.

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