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Cognizant third-quarter sales and profit rise

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CIOL Bureau
New Update

Jim Finkle

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BOSTON: Cognizant Technology Solutions Corp. on Monday reported higher third-quarter profit on record quarterly revenue from developing software for large U.S. corporations, including JP Morgan and Metropolitan Life Insurance.

Cognizant, one of the four largest software developers in India, expects fourth-quarter revenue to rise more than 45 percent from a year earlier, climbing to at least $252 million.

But that was below the average of $255 million forecast by analysts polled by Reuters Estimates, and Cognizant shares fell as much as 4.6 percent on Monday.

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The stock closed down $1.41, or 3.1 percent, at $43.98 on the Nasdaq exchange. It has been a high flyer, climbing 31 percent in a year while the S&P 500 Index rose 7 percent.

Third-quarter net income rose to $40.6 million, or 28 cents a share, from $26.1 million, or 18 cents, a year earlier. Revenue rose to $235.5 million from $155.4 million.

Cognizant, which is based in Teaneck, New Jersey but operates in India, is benefiting from soaring demand for outsourcing jobs to Asia and Eastern Europe where there are large pools of engineers and other skilled workers willing to work for lower wages than in the United States and Western Europe.

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The company's revenue is poised for "impressive growth" next year as it expands the range of products it offers, signs on new customers and hires more employees, RBC Capital Markets analyst Cynthia Houlton said in a note to clients.

"More importantly, customers are also moving more work offshore and increasing Cognizant's addressable market potential," she said.

She raised her estimate for 2006 revenue to $1.196 billion from $1.191 billion, and increased her full-year profit forecast to $1.36 a share from $1.34.

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So far this year, Cognizant's revenue has gained 52 percent, rising to $628.9 million from $413.9 million in the first three quarters of last year.

During the same period, Cognizant's competitors have posted average revenue growth of 30 percent to 35 percent, said Chief Executive Lakshmi Narayanan.

He wouldn't talk about his forecast for next year, but said he expects the company growth to remain at the top of the industry. "We are extremely encouraged," he said.

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Business from health-care customers grew the fastest during the quarter, gaining 18 percent from the second quarter. Customers in financial services spent 14 percent more than in the second quarter. Business in those industries last year accounted for almost half of Cognizant's sales.

JP Morgan is one of its biggest customers, responsible for more than 10 percent of revenue. Others include ADP Inc., Computer Sciences Corp. and United Healthcare.

Even though fourth-quarter revenue could miss forecasts, the company expects profit of 29 cents a share, which is in line with analysts' estimates.

The company added some 3,100 employees during the quarter, bringing its headcount to 22,400. About 17,000 of them work in India, where compensation costs are 15 to 20 percent of what they are in the United States, according to Narayanan.

The company's competitors include Accenture, Electronic Data Systems Corp., IBM and Infosys.

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