Cognizant Q2 revenue up 3%, profit up 11%

Software services and consultancy firm Cognizant reported better-than-expected results even as the company saw its adjusted operating margins rise marginally amid a slump in margins at other information technology services companies.

The New Jersey- and Chennai-based Cognizant reported a 3.5% rise in quarterly revenue at $4.14 billion during the second quarter of 2019 (the US-registered company does not follow the Indian financial year) as against $4 billion it had reported during the second quarter of 2018.

The company, which has most of its employees working in Chennai, also saw a  sequential rise of 0.8% in revenue.

The company projected a full-year 2019 revenue growth in the range of 3.9%-4.9% in constant currency. 

The numbers are well below the growth range the company’s peers like TCS and Infosys have projected. The two Indian IT exporters are expecting growth of more than 9% during the current fiscal. 

"We are taking the necessary steps for improved commercial and financial performance," said Brian Humphries, chief executive officer, adding that there is a lot of work to do.

Cognizant reported a net profit of $509 million during Q2 compared to $456 million during the same period last year, up 11.6%. The sequential growth in profit was higher at 15.4% as the company reported a net profit of $441 million during Q1.

The company saw its adjusted operating margin increased to 16.1% during the quarter as against 16% reported during the preceding quarter. This is still a sharp decline from 19.2% registered during the same quarter of last year.

"Second quarter results were in-line with our guidance and position us to achieve our full-year outlook," said Karen McLoughlin, chief financial officer. "We are implementing actions in the second half of the year that we expect will lower our existing cost structure and allow for greater investment in growth, talent, and digital solutions," she added. 

Despite soft demand from Cognizant’s large clients in the financial sector, the company has managed to report a 1.7% growth in constant currency in the financial services (which contributes to 35.6% of overall revenues). 

The segment revenue growth was driven by modest improvement in banking because of the contribution from the partnership with three Finnish financial institutions to transform and operate a shared core banking platform,  an official statement said.

Healthcare (27.4% of revenue) segment revenue declined 1.5% year-over-year. Cognizant attributed the decline to industry consolidation as well as an accelerated movement of work to a captive by one of its large North American client.

The company has returned over $1.1 billion to shareholders in the second quarter, it said.

The company has seen its quarterly annualised employee attrition climb to 23% during the quarter from just 19% it reported during Q1. Its overall headcount stood at 2.9 lakh.