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Cognizant cuts FY growth guidance to 8.5%-9.0% from 8.5%-9.5%

cognizantCognizant, the low-margin, high-growth IT services company, seems to also have fallen prey to the ongoing slowness in the IT outsourcing sector.

The company reported revenue growth of just 2.5% — less than that of Infosys — for the third quarter of this calendar year. Infosys had reported a growth of 3.5% in dollar terms, while TCS had reported an increase of just 0.3%.

More worryingly, its guidance for the next quarter was for a revenue of $3.45 billion to $3.51 billion. Since third quarter revenue was $3.45 bln, this implies a flat to 1.7% growth for the final quarter of the calendar year.

Part of the reason for the conservative guidance could be the seasonal weakness in the holiday quarter, which has fewer workdays.

For the full year, Cognizant now expects revenue growth of just 8.5%-9.0%, less than half the growth seen in 2015, when the top line grew by 21%. Three months earlier, it had guided for revenue growth of 8.5-9.5% for 2016.

Even Infosys, considered a laggard when compared with Cognizant, has a guidance of 8-9% dollar revenue growth for the ongoing year.

THIRD QUARTER

Revenue for the third quarter of 2016 was $3.45 billion, up 8.4% from $3.19 billion in the third quarter of 2015.

Reported net income was $444.4 million compared to $397.2 million in the third quarter of 2015.

Operating margin for the quarter was 16.9%. Excluding the impact of stock-based compensation costs and acquisition-related charges, operating margin for the quarter was 19.3%.

“We see ongoing client demand for our services across industries and geographies,” said Francisco D’Souza, Chief Executive Officer. 

“As the physical and digital worlds converge, we have made it easier for clients to work with us by aligning our organizational structure and capabilities around the broader focus of assisting clients drive digital transformations. Our new President, Raj Mehta, who has been a key member of our senior leadership team for two decades, and the broader team of executives are leading our strategic initiatives. They have a proven track record of innovation, execution and an unwavering focus on client service and satisfaction.”

“Third quarter revenue was within, and non-GAAP EPS was slightly above, our guided range, indicating that we continue to execute well on our stated strategy,” said Karen McLoughlin, Chief Financial Officer. “Our solid performance was also reflected in another strong quarter of cash flow generation as cash and investments, net of debt increased by $390 million.”

Fourth quarter 2016 non-GAAP diluted EPS is expected to be in the range of $0.85 to $0.88.

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