Cognizant manages strong steady growth and a slight beat on Q1
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Cognizant manages strong steady growth and a slight beat on Q1

Cognizant Technology Solutions is a frontrunner in the shift towards digital IT services, and its latest earnings release, posted last week, demonstrates that it is fighting off strong competition in a heavily contested industry. The company has a track record of posting incrementally better results: it doesn’t tend to suddenly deliver massive beats, but does regularly meet or slightly exceed expectations. That’s what investors were hoping for in the first quarter of 2017, and that’s what they got. So it’s no surprise that Cognizant’s share price trended up in the aftermath.

Cognizant’s share price is up 20% year to date

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SOURCE: Yahoo Finance

Cognizant revenue for the quarter was slightly better than expected, showing an increase of 10.7%, year-on-year, to $3.55 billion. Likewise, adjusted net income was up 5% from the year-ago quarter, producing earnings per share of $0.84 – that’s $0.01 higher than analysts expected.

As to where the company made its money, there were a few standout factors. First was that Cognizant’s smaller businesses are logging the best performance: the communications, media, and technology segment saw sales climb by 17% from last year, and the products and resources group grew almost as much, at 16% over the same period. Together, these two segments make up a third of Cognizant’s overall revenue, but they were clearly the outperformers in 1Q2017.

Regarding geographical regions, Cognizant had one obvious weak spot: Britain. The ongoing Brexit process has hit the company hard in the country, and sales fell by 8%. However, this shortfall was more than compensated for by the rest of Europe and North America, where revenues rose by 7% and 11%, respectively, from the previous year.

Cognizant’s CEO, Francisco D’Souza, looked to put these quarterly results in the wider context of Cognizant’s future:

"We delivered solid results in the first quarter, and continued to build our digital solutions portfolio, expand our skills, and enhance our engagements with clients. We're making good progress in accelerating Cognizant's shift to digital services and solutions to create value for clients and shareholders, positioning us well to achieve both our revenue and margin targets for this year.”

Disclosure

Dominion holds Cognizant Technology Solutions in its Global Trends Ecommerce Fund. 


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