Cognizant profit tops estimates on demand from Europe

Thu Feb 7, 2013 10:06pm IST

1 of 2. Indian employees at a call centre provide service support to international customers, in Bangalore March 17, 2004.

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REUTERS - IT services company Cognizant Technology Solutions Corp's(CTSH.O) quarterly profit modestly beat estimates, helped by a rise in demand from Europe after quarters of tepid growth in business from the region.

European companies have been outsourcing more as instability in the region forces them to restructure and cut costs.

Cognizant President Gordon Coburn that while it appears the worst was over for Europe's economy, long-term challenges remain.

"We believe that these long-term challenges will serve as a catalyst for existing new clients to look to Cognizant to help them transform their operations in technology," Coburn told Reuters.

Rivals Tata Consultancy Services Ltd(TCS.NS) and Infosys Ltd(INFY.NS), India's top two software services providers, reported better-than-expected results last month, helped by client additions and accelerated IT spending by existing customers.

Thirteen new deals in Europe boosted Infosys' revenue in the quarter ended December 31 but TCS termed Continental Europe a "soft point".

"We would expect Europe on a full-year basis to grow faster than the company average," Coburn said.

Revenue from Cognizant's European business rose 19 percent in the fourth quarter, after three consecutive quarters of slow growth.

The company has been facing slowing revenue growth from North America, which accounts for the bulk of its revenue.

Revenue growth in North America slipped below the 20 percent mark, continuing the downward trend from past quarters.

In addition to that, economic uncertainty in the United States in the fourth quarter due to the presidential elections, the approaching "fiscal cliff" and superstorm Sandy forced companies to postpone technology spending.

Cognizant shares were up 2.3 percent at $78.06 in late morning trading on the Nasdaq.

TEPID OUTLOOK

Cognizant forecast full-year profit below analysts' estimates. The cautious outlook, which many analysts had expected, comes after the company was forced to cut its 2012 projections in May for the first time in nearly four years.

"We learned from our mistake last year," Coburn said on a conference call with analysts.

The company expects pent up demand in its financial services to be released after "significant" pullbacks in spending over the last several quarters.

Cognizant gets about 40 percent of its revenue from financial services clients such as JPMorgan Chase & Co (JPM.N), Rabobank and UBS AG UBSN.VX. Financial services revenue grew 20 percent in the fourth quarter.

"Cognizant is probably being conservative at the start of the year, instead of guiding to Street estimates, which do not include acquisition revenues," BMO Capital analysts said in a note.

Net income rose 16 percent to $278.8 million, or 92 cents per share, in the fourth quarter, from $240.1 million, or 78 cents per share, a year earlier.

Total revenue rose 17 percent to $1.95 billion. Revenue from Europe, which accounts for nearly a fifth of the company's total revenue, rose 19 percent to $326.2 million.

Analysts on average had expected earnings of 91 cents per share on revenue of $1.95 billion, according to Thomson Reuters I/B/E/S.

The company, founded in 1994 as a captive unit of Dun & Brad Street (DNB.N) in India, has not missed analysts' profit estimates for 16 quarters.

It forecast first-quarter earnings of 92 cents per share on revenue of at least $2 billion.

The company, which has said it expects healthcare to grow slower than the company average in 2013, forecast at least $3.95 per share in profit for 2013 and revenue of at least $8.6 billion.

Analysts expected earnings of 93 cents per share, on revenue of $2 billion for the first quarter. For the full year, they were looking for a profit of $4.00 per share, on revenue of $8.58 billion.

(Reporting by Sayantani Ghosh and Sruthi Ramakrishnan in Bangalore; Editing by Saumyadeb Chakrabarty)

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