Cognizant reports its first ever quarterly loss
Bengaluru: Cognizant Technology Solutions Corp. managed to grow its December quarter revenue faster than analyst expectations, but a one-time expense due to a change in US tax policy hit profitability at the Nasdaq-listed firm, which reported its first quarterly loss in its 24-year history.
On Wednesday, Cognizant also said that beginning this year, the company plans to add 25,000 Americans over the next five years to its workforce in the US.
Cognizant, which is based in the US but has most of its employees in India, said revenue in the three months ended 30 December increased 10.6% from a year earlier, and improved 1.6% from the preceding September quarter, to $3.83 billion.
However, the company reported a loss of $18 million in the fourth quarter, from a $416 million profit in the year-ago period and a $495 million profit in the third quarter. This, the management said, was on account of the firm making a one-time provision of $617 million under repatriation tax of undistributed earnings of foreign subsidiaries.
The US government changed its tax policy, levying a one-time tax on companies bringing in money from overseas.
Analysts polled by Bloomberg had expected Cognizant to report a revenue of $3.82 billion and profit of $570 million.
Cognizant, which follows a January-December fiscal year, clocked a 9.8% growth last year—better than its 8.6% growth in 2016—and ended with $14.81 billion in revenue in 2017, implying that the company added $1.32 billion in incremental revenue.
For 2018, the management said it expects full-year revenue to be between $16 billion and $16.3 billion, translating into incremental new business of between $1.19 billion and $1.49 billion.
The Teaneck, New Jersey-based company expects revenue in the March quarter to be between $3.88 billion and $3.92 billion, a sequential increase of 1.3% and 2.3%, which is lower than the 2.4% sequential revenue increase in the quarter to March last year.
“Last year, we added 4,800 US citizens and permanent residents to our workforce. And over the next five years, we plan to hire an additional 25,000 US workers,” Cognizant chief executive officer Francisco D’Souza told analysts in a post-earnings call.
Cognizant president Rajeev Mehta said in an interview: “We are focused both on revenue and margin…So if you look at it, we ended this quarter with a 19.7% margin and we are guiding to take it up to 21% next year. And at the same time, we have had a very good growth. So, we had a solid 2017 and are very well-positioned to have a fantastic 2018.”
Cognizant’s outlook for 8-10% growth this year, which is not much different from its 9.8% growth last year, is contrary to the cheerful commentary from its Indian rivals.
Tata Consultancy Services Ltd (TCS), though it does not give any quarterly or yearly growth outlook, said earlier this year that it expects to report a double-digit growth in the financial year beginning April. Managements of Bengaluru-based firms Infosys Ltd and Wipro Ltd too expect their companies to report better growth in the next financial year.
At least one analyst believes the Cognizant management’s full-year guidance to be conservative.
“The management has historically added $1.2-1.4 billion of organic incremental revenue (ex-Trizetto) over the past five years, as revenue growth rates have slowed given a larger base. In CY18 (calendar year), we think core revenues will grow in a similar dollar range of $1.2 billion. We estimate that FX (forex) and a minor amount of M&A will be tailwinds in CY18. Net, we project CY18 total revenue growth of $1.32 billion, compared to consensus estimates of $1.38 billion,” Keith Bachman, an analyst with BMO Capital Markets, wrote in a 5 December note.
Cognizant shares were trading up 5.1% at $77.67 on the Nasdaq as of 8.52pm (IST) on Wednesday.
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