A month has gone by since the last earnings report for Genpact (G). Shares have added about 0.7% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Genpact due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Genpact Beats on Q3 Earnings and Revenue Estimates
Genpact delivered impressive third-quarter 2019 results, with earnings and revenues beating the Zacks Consensus Estimate.
Adjusted earnings per share of 56 cents outpaced the consensus mark by 8% and increased 17% year over year. The increase was driven by higher operating profit of 7 cents and a lower effective tax rate of 2 cents, partially offset by negative impact of a penny related to lower foreign exchange balance sheet remeasurement gains and higher net interest expense.
Revenues amounted to $889 million, which beat the consensus estimate by 2% and improved 19% year over year on a reported basis as well as constant-currency basis. The top line was driven by large deals and growth in transformation services.
Revenues in Detail
Total BPO revenues (84% of total revenues) increased 20% year over year to $749 million. Total IT revenues (16% of total revenues) came in at $139 million, up 12% year over year.
Global Clients (86% of total revenues) revenues climbed 12% year over year on a reported basis and 13% at cc to $768 million. Global Client BPO revenues of $666 million improved 14% year over year on a reported as well as constant-currency basis. Global Client IT revenues grew 4% year over year to $102 million.
General Electric (GE) revenues of $121 million increased 88% year over year. It contributed 14% to total revenues. GE BPO revenues improved 124% year over year to $83 million. GE IT revenues of $38 million increased 38%.
Adjusted income from operations totaled $142 million, up 15% year over year. Adjusted operating income margin decreased to 16% from 16.6% in the year-ago quarter.
Selling, general & administrative (SG&A) expenses amounted to $195 million, up 16% year over year. As a percentage of revenues, SG&A expenses were 21.9% compared with 22.5% in the prior-year quarter.
Balance Sheet and Cash Flow
Genpact exited the third quarter with cash and cash equivalents of $368 million compared with $378 million at the end of the previous quarter. Long-term debt (less current portion) totaled $976 million compared with $959 million at the end of the second quarter.
The company generated $220 million of cash from operating activities in the quarter. Capital expenditures were $25 million. Genpact returned around $16 million to shareholders through dividend payout and $24 million through share repurchase in the quarter.
Genpact has raised its 2019 EPS guidance. Adjusted EPS is now projected between $2.02 and $2.04. The company continues to expect revenues in the range of $3.46-$3.5 billion. Global Client revenues are expected to register 9.5 growth on a reported basis and 10.5-12% rise at cc. Adjusted operating income margin is continued to be anticipated around 16%.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -6.12% due to these changes.
At this time, Genpact has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of this revision has been net zero. Notably, Genpact has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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