May 2, 2019 / 8:25 PM / 4 months ago

Cognizant cuts 2019 forecasts on lower financial, healthcare demand

(Reuters) - Cognizant Technology Solutions Corp on Thursday nearly halved its 2019 revenue expectations after missing first-quarter results, as the IT services and outsourcing company faces sluggish demand in its financial and healthcare businesses.

Shares dropped as much as 6 percent in after-hours trading before paring losses. They fell sharply just before the markets closed after the results were released ahead of the scheduled time.

“Revenue performance reflects both external factors, including in-sourcing among a few large financial services clients and the spending pullback in healthcare clients that are in the midst of merger integration, as well as Cognizant-specific execution issues,” new Chief Executive Officer Brian Humphries said on his first post-earnings call.

The company’s reliance on financial services sector has been weighing on its overall revenue growth in the past few quarters.

Chief Financial Officer Karen McLoughlin on the call said the company was seeing some cautiousness in the banking sector around levels of spending in the second half of the year.

The company forecast 2019 revenue growth in the range of 3.6 percent and 5.1 percent in constant currency, compared with between 7 percent and 9 percent earlier.

Cognizant also cut its full-year adjusted profit forecast and now expects it to be in the range of $3.87 per share to $3.95 per share. It had earlier expected at least $4.40 per share.

“For some time we’ve had questions around the spend environment around EU and to some degree North America banks,” said Darrin Peller, an analyst with Wolfe Research.

Cognizant expects current-quarter revenue in the range of $4.16 billion and $4.20 billion in constant currency. Analysts were expecting a revenue of $4.29 billion.

The company has turned to cloud computing, cybersecurity and analytics as it looks to cut down dependence on IT services, where margins are being squeezed by clients demanding more work at lower costs.

Revenue in its financial services unit fell 1.7 percent to $1.44 billion in the first quarter, while healthcare services revenue rose nearly 4 percent to $1.17 billion but missed the $1.20 billion forecast by three analysts polled by Refinitiv.

Total revenue rose to $4.11 billion, but came in below the company and Wall Street expectations.

Excluding items, the company earned 91 cents per share, missing analysts’ average estimate of $1.04.

Reporting by Sayanti Chakraborty in Bengaluru; Editing by Bernard Orr and Sriraj Kalluvila

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