Cognizant Profit Soars, Exceeding Wall Street's Expectations

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Cognizant Technology Solutions, a major IT services company, reported Monday that revenue soared 43% in the third quarter, as businesses spent more to deploy new technologies to drive growth.

For the quarter ended Sept. 30, revenue reached $1.2 billion, compared with $853.5 million during the same period a year ago. Profits rose about 32%, to $203.7 million, or 66 cents a share, from $136.6 million, or 45 cents a share, a year ago.

Cognizant beat Wall Street’s expectations. Analysts had expected earnings of 60 cents a share on revenue of $1.18 billion, according to Thomson Reuters.

The latest quarter was the second in a row in which Cognizant reported double-digit revenue growth. The latest jump in revenue and profits was due to businesses spending more for IT projects that went beyond just making operations more efficient.

"Yet another strong quarter is continuing evidence that clients are not just seeking cost efficiencies, but are also stepping up investments in their business platforms and new capabilities to drive growth and innovation," Francisco D'Souza, president and chief executive for Cognizant, said in a statement.

Among the "transformative technologies" companies were spending money on included cloud computing and social networking, D'Souza said. Another area of spending included mobile networks.

Gordon Coburn, chief financial and operating officer, said the company's growth stretched across industries, service lines and geographies. "In addition, our record level of cash generation is further evidence of our solid financial model," he said.

Joseph Walent, analyst for Technology Business Research, said Cognizant was reaping the benefits from investments it made in its own business during the recession, in order to prepare for the time businesses started spending again. For example, Cognizant in the fourth quarter of 2009 boosted its workforce by 10,000 new hires.

"Seeds planted in the downturn have grown to bear fruit," Walent said in a commentary on the earnings report. "Ongoing investment and hiring during the depth of the global economic downturn bolstered Cognizant’s cadre of industry experts available to clients to devise and implement transformative solutions."

In order to expand its mobile and cloud computing services, Walent expected Cognizant to make an acquisition in the current quarter or in the first quarter of next year.

Teaneck, N.J.-based Cognizant forecast net income of 64 cents a share in the current quarter on revenue of $1.27 billion. For the full year, the company expected revenue of $4.55 billion, up 38.8% from 2009.

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