Employees work at their computer screen. (Photographer: Kerem Uzel/Bloomberg)

Cognizant Projects Lowest-Ever Revenue Growth

Cognizant Technology Solutions Corp lowered its full-year revenue growth outlook after its earnings for the first quarter came below analyst expectations.

The Nasdaq-listed information technology firm, which has most of its employees working in India, cut its revenue growth guidance for the year ending December 2019 to 3.6-5.1 percent in constant currency from 7-9 percent earlier. The company has been reporting single-digit revenue growth annually since 2016.

This would be the slowest growth that the company has seen since 1996, according to Bloomberg data. While the company was incorporated in 1994, Bloomberg has data as far back as 1996.

Karen McLoughlin, the chief financial officer at Cognizant, said the slower growth in financial services and healthcare for the remainder of 2019 was the reason for lowering the guidance.

The expected earnings per share for the year was also revised downwards to $3.87-3.95 per share from $4.4 per share stated at the end of December 2018.

In the January-March quarter, the company’s performance was below analyst expectations with revenue declining 0.5 percent sequentially to $411 million. GAAP operating margins fell to 13.1 percent from 16.8 percent quarter-on-quarter with the GAAP diluted earnings per share for the quarter falling to $0.77 against $1.12 in the previous quarter.

The company, however, expects to keep operating margin over 17 percent in the ongoing fiscal.

The IT industry in India does not need to worry just yet. “A large part of the slippages seems specific to Cognizant and not representative of growth across the industry,” Kotak Institutional Equities said.

The broking firm, however, does not rule out risk from the financial services vertical. The clients from the capital market segment have turned cautious in spending outlook, it said.

Broking firm Nirmal Bang said the commentary on banking and financial services does not bode well for the Indian IT services sector considering the vertical contributes 30-40 percent to revenues for most companies.