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Genpact (G) Earnings and Revenues Beat Estimates in Q4

Zacks

Genpact Limited G delivered fourth-quarter 2017 non-GAAP earnings of 43 cents per share, which remained flat on a year-over-year basis. However, the figure came ahead of the Zacks Consensus Estimate by a couple of cents.

Revenues of $734.4 million increased 7.7% (up 7% on a constant currency basis) from the year-ago quarter. Revenues also surpassed the Zacks Consensus Estimate of $722 million.

The company’s artificial intelligence (AI) based platform called Genpact Cora and its recent acquisitions are proving to be beneficial for the top line.

Genpact stock has gained 35.9% year over year, substantially outperforming the 4.7% rally of the industry it belongs to.


Quarter Details

Total BPO revenues (84% of total revenues) increased 11% year over year to $614 million. Total IT services revenues (16% of total revenues) were down 6% year over year to $121 million.

Global Client (91% of total revenue) revenues increased 12% (11% at constant currency) to $669 million driven by the strong performance of transformation services (comprising of analytics, digital and consulting segments), which witnessed year-over-year growth of 25% and represented almost 20% of Global Client revenues.

Global Client BPO segment revenues of $575 million recorded 15% (15% at constant currency) growth on the back of robust performance of industry verticals like insurance, banking, manufacturing, CPG, high tech, life sciences, finance and accounting.

Global Client IT revenues were down 8% year over year to $94 million, impacted by the latest divestiture of the European legacy IT business. The industry has been facing challenging business conditions over the past several quarters.

Revenues from General Electric GE represented around 9% of total revenues and fell 20% during the quarter to $65 million, primarily due to the impact from the GE capital divestitures. GE BPO revenues decreased 30% year over year to $39 million. GE IT revenues of $26 million increased 2% from the year-ago quarter.

Adjusted income from operations during the quarter came in at $115 million. Operating margins came in at 15.7%, down 100 basis points (bps) year over year. Selling, general & administrative (SG&A) expenses totaled $189 million, up 10.5% year over year. As a percentage of revenues SG&A came in at 6.8% as compared with 7.1% reported in the year-ago quarter.

Balance Sheet & Dividend

Genpact ended the quarter with cash and cash equivalents of $504 million. The company generated $359.1 million in cash from operations for the year ended Dec 31, 2017. The company repurchased around 7.7 million shares in 2017 for $216 million. It also increased annual dividend to 30 cents per share (up 25%).

Guidance

For full-year 2018, revenues are anticipated in the range of $2.93-$3.00 billion. This expected figure will represent growth of 7-9.5% on a constant currency basis as well as on reported basis. The Zacks Consensus Estimates is pegged at $2.89 billion.

Global Client revenues for 2018 are expected to grow approximately 9-11% on a constant currency basis as well as on a reported basis. GE is expected to decline 8-10%, primarily impacted by decline in GE Capital business in 2017.

Non-GAAP operating income margin is expected to be 15.8%. Earnings are anticipated to come in the range of $1.70-$1.74 per share. The Zacks Consensus Estimates is pegged at $1.77 per share.

Conclusion

Genpact delivered stellar fourth-quarter results, with both top and bottom line surpassing the Zacks Consensus Estimates. Revenues for the quarter also increase year over year. Also, the company provided an encouraging fiscal 2018 revenue guidance.

Genpact’s domain expertise in business analytics, digital and consulting sectors is a key catalyst.

Notably, management is positive about the growing pipeline on the back of increasing adoption of the company’s transformation services. The enthusiastic approach of the C-level of different companies in transforming business models through digital, data and analytics is turning out to be a positive.

Additionally, supply chain management is another sector where the company has growth opportunities. Being recognized as one of the top three leaders in supply chain management by The Everest Group is another positive.

We believe its diverse portfolio, enhanced by the offerings of the acquired organizations, will provide Genpact with a competitive advantage against peers like Cognizant Technology Solutions CTSH and Accenture plc ACN.

Zacks Rank

Genpact currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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