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Genpact (G) Surpasses Earnings and Revenue Estimates in Q2

Zacks Equity Research

Genpact Limited G delivered impressive second-quarter 2019 results, with earnings and revenues beating the Zacks Consensus Estimate.

The stock has gained 8.4% since the earnings release on encouraging revenue guidance for 2019. Management guided revenues in the range of $3.46 to $3.5 billion, which is above the current Zacks Consensus Estimate of $3.38 billion and the previous guidance of $3.33-$3.39 billion. The current guidance indicates year-over-year growth of almost 15-17% on a reported basis and 16-18% at constant-currency (cc).

The stock has gained 55.4% year to date, significantly outperforming the 29% rally of the industry it belongs to.

Quarterly adjusted earnings per share of 49 cents outpaced the consensus mark by 2 cents and increased 20% year over year. Higher operating profit had a positive impact of 11 cents on the bottom line. However, the upside was partially offset by a negative impact of a penny each related to lower foreign exchange balance sheet remeasurement gains, higher net interest expense and higher effective tax rate.

Revenues amounted to $882 million, which beat the consensus estimate by $57 million and improved 21% year over year on a reported basis and 22% on constant-currency  basis. The top line was driven by large deal ramps and ongoing transformation services wins.

Genpact Limited Revenue (TTM)

Genpact Limited Revenue (TTM)

Genpact Limited revenue-ttm | Genpact Limited Quote

Let’s check the numbers in detail.

Revenues in Detail

Total BPO revenues (84% of total revenues) increased 23% year over year to $743 million. Total IT revenues (16% of total revenues) came in at $139 million, up 13% year over year.

Global Clients (86% of total revenue) revenues climbed 15% year over year on a reported basis and 16% at cc to $760 million. Global Client BPO revenues of $659 million improved 16% year over year on a reported basis and 17% at cc. Global Client IT revenues grew 7% year over year to $101 million.

General Electric (GE) revenues of $121 million increased 86% year over year. It contributed 14% to total revenues. GE BPO revenues improved 125% year over year to $84 million. GE IT revenues of $38 million increased 34%.

Operating Results

Adjusted income from operations totaled $136 million, up 24% year over year. Adjusted operating income margin increased to 15.4% from 15% in the year-ago quarter.

Selling, general & administrative (SG&A) expenses amounted to $196 million, up 11% year over year. As a percentage of revenues, SG&A expenses were 22.3% compared with 24.2% in the prior-year quarter.

Balance Sheet and Cash Flow

Genpact exited the second quarter with cash and cash equivalents of $378 million compared with $325 million at the end of the previous quarter. Long-term debt (less current portion) totaled $959 million compared with $967 million at the end of the first-quarter.

The company generated $126 million of cash in operating activities in the quarter. Capital expenditures were $16 million.

Genpact returned around $16 million to shareholders through dividend payment in the quarter.

Guidance

Genpact has raised its 2019 EPS guidance. Adjusted EPS is now projected between $2 and $2.02. The Zacks Consensus Estimate is pegged at $2. The prior projection was between $1.96 and $2.00.

Global Client revenues are expected to register 9.5%-11% growth on a reported basis and 10.5-12% rise at cc. The prior expectation was 9.0-10.5% growth on a reported basis and 10.0-11.5% rise at cc.

Adjusted operating income margin is continued to be anticipated around 16%.

Zacks Rank & Stocks to Consider

Genpact currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader Zacks Business Services sector are ICF International ICFI , Accenture ACN and Charles River Associates CRAI, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The long-term expected EPS (three to five years) growth rate for ICF, Accenture and Charles River is 10%, 10.3% and 13%, respectively.

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