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Cognizant Cuts Full Year Revenue Guidance Again, Second Quarter Profit Falls 40%

Cognizant Technologies’ second quarter profit falls 40%



Francisco D’Souza, chief executive officer of Cognizant Tech Solutions Corp. (Photographer: Daniel Acker/Bloomberg)
Francisco D’Souza, chief executive officer of Cognizant Tech Solutions Corp. (Photographer: Daniel Acker/Bloomberg)

US-based Cognizant has posted a 40 percent decline in net profit to $252.4 million (around Rs 1,600 crore) for June quarter on higher provisioning for taxes and cut its annual revenue guidance, highlighting broader macroeconomic challenges being faced by global IT industry.

The IT services major, which competes with the likes of TCS and Infosys, saw revenues rising 9.2 percent to $3.36 billion in the said quarter, just meeting its forecast of $3.34-3.40 billion topline for the second quarter. For the entire year, Cognizant lowered its revenue outlook to $13.47-13.60 billion, translating to a growth of 8.4-9.5 per cent. This is well below industry body Nasscom’s estimate of 10-12 percent growth and much lower than Cognizant’s 2015 topline growth of 21 percent.

At the start of the year, Cognizant had guided for a growth rate of 9.9-14.3 percent, which it reduced post first quarter to 9.9-12.7 percent. It follows January-December as its fiscal year.

Explaining the decline in profit, Cognizant CEO Francisco D’Souza said the company’s principal operating subsidiary in India repurchased shares from its shareholders, which are non-Indian Cognizant entities in May this year.

This resulted in a one-time remittance of $2.8 billion of cash from India. (About) $1.2 billion, or $1 billion net of taxes, was transferred to the US with the other $1.6 billion remaining overseas.
Francisco D’Souza, CEO, Cognizant

As a result of this transaction, Cognizant will incur an incremental 2016 income tax expense of $237.5 million. Of this, $190 million was recognised in June quarter, while $23.7 million will be recognised in each of the quarters ending September and December, 2016.

While our revised guidance reflects the impact of near-term macroeconomic headwinds, our longer term outlook and underlying business fundamentals remain strong. We continue to see an expanding market opportunity ahead.
Francisco D’Souza, CEO, Cognizant

He added the second quarter performance represented broad-based revenue growth across service lines, geographies and industries, including healthcare and financial services. For July-September quarter, it expects revenue to be in between $3.43 billion and $3.47 billion. June quarter has been a mixed bag for Cognizant’s Indian counterparts.

While TCS delivered 3.7 per cent sequential revenue growth, Infosys and Wipro came out with less than expected quarterly results.

Earlier in the year, Cognizant had alarmed investors by warning of slower spending from top customers in the banking and financial services that accounts for about 40 percent of the New Jersey-based company’s revenues.