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Infosys (INFY) Beats Q4 Earnings Estimates, Misses Revenues

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Infosys (INFY) Beats Q4 Earnings Estimates, Misses Revenues

Infosys (INFY) reports mixed first-quarter fiscal 2019 results owing to sluggishness in the financial services sector. However, large deal wins are a positive for the company.

Infosys Limited INFY reported first-quarter fiscal 2019 earnings of 27 cents per share, which topped the Zacks Consensus Estimate of 25 cents and also came ahead of the year-ago figure of 24 cents per share.
   
Revenues of $2.83 billion increased 6.8% year over year but missed the Zacks Consensus Estimate of $2.87 billion. In terms of constant currency (CC), revenues were up 6 %.

Infosys’s focus on Agile Digital and AI-driven Core services is a tailwind. The company is benefiting from strength in energy, utilities, retail, insurance, and manufacturing sectors. Although the Financial Services segment was a bit sluggish, management is optimistic about performance of the business going forward.

Shares of Infosys have gained 22.6% on a year-to-date basis, outperforming the industry's 18% rally.

 



 

Top-Line Details

Digital Revenues (28% of total) were up 26.9% year over year to $803 million. Core Revenues (72%) increased 0.5% to $2.03 billion.

In the quarter, the company signed deals with a total contract value (TCV) of $1.1 billion compared with $905 million in the previous quarter. Notably, 40% of it came from Financial Services.

Infosys added four clients worth more than $100 million in revenues each. The number of total clients is now 24. Out of the four, two clients are in financial services.

Geographically, on a sequential basis, North America and Europe revenues grew 2% each in CC. However, revenues from India declined 4.1% in CC. Rest of World recorded 5.3% growth.

On the basis of segment, Retail and Energy, Utilities, Resources & Services recorded highest growth of 6% and 5%, respectively, in CC. Communication, Manufacturing, Hi Tech and Life Sciences rose 1.3%, 2.5%, 1.7% and 0.5%, respectively. However, Financial Services fell 0.2%.

Infosys Limited Price, Consensus and EPS Surprise

Infosys Limited Price, Consensus and EPS Surprise | Infosys Limited Quote

Operating Details

Gross margin contracted nearly 40 basis points (bps) on a year-over-year basis to 35.7%.

The company’s operating income increased 5% year on year to $1.01 billion. However, operating margin declined 40 bps to 23.7%.

Increase in investments on sales, building onsite talent supply chain, cost of new H1 visas and other business overheads impacted margins.

Liquidity

As of Jun 30, 2018, Infosys had cash and cash equivalents of $2,411 million compared with $3,041 million recorded in the previous quarter.

Outlook

Infosys reiterated its fiscal 2019 guidance.  Revenues are expected to grow in the range of 6-8% at CC.

Operating margin range is anticipated to be between 22% and 24%.

Zacks Rank and Stocks to Consider

Infosys currently has a Zacks Rank #3 (Hold).

A few-better ranked stocks in the broader technology sector are YY Inc. YY, Science Applications SAIC and Verint Systems VRNT, all sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth for YY, Science Applications and Verint is projected to be 26.4%, 5% and 10%, respectively.

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