Cognizant results hold up amid outsourcing gloom

Mon Aug 6, 2012 2:29pm EDT

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(Reuters) - Cognizant Technology Solutions Corp (CTSH.O) stood by its full-year revenue forecast at a time when its Indian peers have been painting a gloomy picture for the rest of the year on slowing global outsourcing spending.

The company's shares rose as much as 13 percent to $65.48 on Monday on the Nasdaq.

Teaneck, New Jersey-based Cognizant, most of whose employees are in India, has been gaining ground over Infosys Ltd (INFY.NS) INFY.O and Wipro Ltd (WIPR.NS) as it has traditionally worked with relatively lower margins, helping it win more contracts.

"Cognizant reiterating its guidance of at least 20 percent growth in this environment shows that it's in a different league compared to the likes of Infosys and Wipro," Morningstar analyst Swami Shanmugasundaram said.

Its quarterly revenue topped Infosys' for the first time, as the bellwether of India's showpiece $100 billion outsourcing sector faces diminishing hopes of a revival in demand.

Cognizant added six new strategic customers in the quarter, including Philips Electronics NV (PHG.AS), its president, Gordon Coburn, told Reuters.

The company defines strategic customers as those who have the potential to bring in at least $5 million to more than $50 million a year in annual revenue.

Cognizant is seeing an upward shift in pipeline as clients look for ways to run their business more efficiently and a shift to larger end-to-end outsourcing deals from discretionary projects, Coburn said on a conference call.

The company entered into a $330 million deal in June with the U.S. unit of Dutch insurer ING Groep NV (ING.AS) to expand the business process management contract between the two.

"The majority of our growth for the remainder of 2012 will come from the ramp-up of clients that we won over the past months and years, including recent transformational engagements such as ING US, Philips and others," Chief Financial Officer Karen McLoughlin said on a conference call.

The company, which also competes with Accenture Plc (ACN.N) and Computer Sciences Corp (CSC.N), said growth returned to some of its largest banking clients in the quarter. It counts JPMorgan Chase & Co (JPM.N), Rabobank RABOC.UL and UBS AG among its core banking clients.

RAISED FULL-YEAR PROFIT OUTLOOK

Cognizant raised its profit forecast but reiterated its revenue outlook for the year.

Coburn said the raised profit outlook is mainly a result of its share repurchase plan in the second quarter.

Cognizant expects earnings for the year to be at least $3.38 per share, up from its previous forecast of at least $3.36 per share. It reaffirmed its revenue forecast of at least $7.34 billion.

"On a constant-dollar basis since we last gave outlook, we actually took our outlook up by over $20 million. We've absorbed over $20 million of negative currency impact for the full year," Coburn said.

Analysts on average were expecting full-year earnings of $3.37 per share on revenue of $7.34 billion, according to Thomson Reuters I/B/E/S.

Cognizant expects its adjusted operating margin to remain in the range of 19 percent to 20 percent for the rest of the year. Operating margins rose to 20 percent for the June quarter from 19.8 percent a year earlier.

The company, which was founded in 1994 as a captive unit of Dun & Bradstreet (DNB.N) in India, said net income rose to $251.9 million, or 82 cents per share, for the second quarter from $208 million, or 67 cents per share, a year earlier.

Excluding today's gains, Cognizant's shares have fallen about 20 percent since May 7 when the company lowered its full-year forecast for the first time in nearly four years.

(Reporting by Sruthi Ramakrishnan in Bangalore; Editing by Don Sebastian, Saumyadeb Chakrabarty)

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