Cognizant Q2 profit up 24%, but lowers revenue guidance

Written by fe Bureau | Bangalore | Updated: Aug 7 2014, 07:22am hrs
Cognizant, the US-headquartered IT services company with a large Indian presence, reported a 23.8% year-on-year rise in net profit for the second quarter, in line with market expectations, but lowered its annual revenue growth outlook to 14% from 16.5%, citing client weakness. It forecast lower revenue for the third quarter, warning of slower growth.

Cognizant, which follows the January to December fiscal, reported a net profit of $371.9 million for the second quarter, rising 6.6% sequentially. The operating profit margin stood at 21%, higher than the company's target of 19-20%. Cognizant's second quarter revenue growth of 3.9% sequentially to $2.52 billion was slightly below market expectations. For the third quarter of 2014, it has projected growth in the range of 1.1% to 2.5%.

On lowering the guidance, Cognizant CEO Francisco D'Souza said, Due to weakness at certain clients and longer-than-anticipated sales cycles for certain large integrated deals, we are adopting a more conservative stance for the remainder of the year and revising our 2014 revenue guidance to growth of at least 14% over the prior year.

An analyst with a foreign brokerage house said that the failure to exceed guidance was a bigger disappointment as IT vendors have good visibility into the next quarter. The company said it was recording a revenue run rate of $10 billion, which will make it the second such India-based IT services firm after Tata Consultancy Services to cross this mark.

Cognizant announced bagging orders from three clients with a total contract value (TCV) of $3.5 billion. This includes a letter of intent with Health Net, a California-based company, for a seven-year deal of $2.7 billion, which, it said, was the largest in its history.

Gordon Coburn, President, Cognizant, said, We expect these three clients to generate at least $200 million in incremental revenue in 2015. These engagements are illustrative of the success of our strategy of re-investing in our business to meet our clients dual mandate of running better to drive operational efficiency and running different to drive growth and innovation.

Cognizant's headcount touched 187,400 at the end of the second quarter and it had made a net addition of 8,800. The company said the attrition rate was down 200 basis points on an annual basis to touch 16.9%.

Karen McLoughlin, Chief Financial Officer, Cognizant, said, We continued to generate healthy profitability during the first half of 2014, as our non-GAAP operating margins came in higher than our targeted range of 19 to 20%. We believe this positions us well to absorb our annual wage increases in the third quarter of 2014.