Cognizant lowers profit forecast on higher-than-expected tax rate

Cognizant also reported a better-than-expected revenue for the first quarter as financial services and healthcare businesses spent more on digital services such as cloud computing and cyber-security.

But the New Jersey-based company said it now expects a 9-cent hit to 2018 earnings per share due to a new interpretation of new US tax laws, which limits the amount of foreign tax credits that Cognizant can receive.

Cognizant lowered its forecast for full-year profit to $4.47 per share from $4.53 and said it expects earnings for the current quarter of at least $1.09, below analysts’ expectations of $1.12 per share, according to Thomson Reuters.

Cognizant, however, raised the lower end of its expected range for full-year revenue. It now expects revenue of between $16.05 billion and $16.30 billion.

The company has invested heavily to offer digital services to financial and healthcare industry clients, which together account for a majority of the company’s revenue.

Revenue from healthcare clients rose 11.8 per cent in the three months ended March 31, while financial services revenue climbed 6.2 per cent.

First-quarter net income fell to $520 million from $557 million. Excluding one-time items, the company earned $1.06 per share.

Revenue rose about 10 per cent to $3.91 billion.

Analysts had expected first-quarter earnings of $1.06 per share and revenue of $3.90 billion.

“Our business is strong, as is our ability to sense and respond quickly to market shifts. Our digitise-internationalise-localise approach is serving us well in today’s business environment. We’re one of a small handful of companies with the range of capabilities to help clients transform at every level of their enterprises. We’ve developed the strong and scalable foundation on which to extend our leadership as the builder of the digital economy. And we expect our forward momentum to deliver a strong 2018,” says Francisco D’Souza, CEO, Cognizant.

•Quarterly revenue rose to $3.91 billion, up 10.3% from the year-ago quarter.

•Digital revenue grew about 27%, 3x company average; ~ 29% total revenue

•Expect full-year revenue growth of 8.4 to 10% - $16.05 to $16.3 billion

•Confident in 2018 non-GAAP operating margin target of about 21%

•Q2 revenue expected in range of $4 to 4.04 billion, growth of 9-10% y-o-y

“In summary, our solid execution in Q1 along with continued investment in the business has positioned us well to deliver another strong year of revenue and earnings growth in 2018,” says Karen McLoughlin, CFO, Cognizant.