Cognizant to return $3.4 billion to shareholders

By: | Published: February 9, 2017 5:43 AM

Nasdaq listed IT services major Cognizant will return $3.4 billion to shareholders over the next two years through a combination of share buyback and dividends even as it entered into an agreement with activist investor Elliott Management, appointing three new independent directors.

Elliott had earlier urged that Cognizant should consider a .5 billion share buyback, acquisitions and initiate a dividend, among other measures to boost its shares.Elliott had earlier urged that Cognizant should consider a .5 billion share buyback, acquisitions and initiate a dividend, among other measures to boost its shares.

Nasdaq listed IT services major Cognizant will return $3.4 billion to shareholders over the next two years through a combination of share buyback and dividends even as it entered into an agreement with activist investor Elliott Management, appointing three new independent directors.

On the plan return money to the shareholders, Cognizant expects to commence a $1.5 billion accelerated share repurchase program (ASR) in the first quarter of 2017, initiate a regular quarterly cash dividend of $0.15 per share commencing in the second quarter and repurchase shares of $1.2 billion in the open market during 2017 and 2018. Elliott had earlier urged that Cognizant should consider a $2.5 billion share buyback, acquisitions and initiate a dividend, among other measures to boost its shares.

In terms of its financial performance, Cognizant reported a year-on-year decline of 1.8% in net profit at $416 million for the fourth quarter ended December 2016. In the fourth quarter of 2015, the company had reported a net income of $424 million. Revenue for the fourth quarter of 2016 rose 7.1% to $3.46 billion compared to $3.23 billion in the corresponding quarter last year.

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Cognizant said the first quarter revenue is expected to be in the range of $3.51 billion to $3.55 billion, while the full year revenue is expected to be in the range of $14.56 billion to $14.84 billion, growing 8-10%.

The GAAP operating margin was 16.2% and non-GAAP operating margin was 18.7% for the fourth quarter of 2016. For the full year 2016, the company reported 8.6% rise in revenues at $13.49 billion.

As we enter 2017, the time is right for us to accelerate the shift to digital services and solutions to meet the growing demands from our clients to transform their business models in the face of the rapid business and technology shifts disrupting their industries,” Francisco D’Souza, chief executive officer, Cognizant said.

The company announced a comprehensive plan to accelerate the shift to digital services and solutions, execute on operational opportunities to drive leverage in its cost structure and return significant capital to shareholders. Beginning 2019, the company plans to return approximately 75% of its US free cash flow on an ongoing basis to shareholders through a combination of dividends and share repurchases.

The capital return plan will be funded by current US cash balances, future cash flows from US operations and incremental debt financing and is designed to preserve the company’s financial flexibility to invest in future growth opportunities.

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