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Infosys Misses 2Q Earnings Estimates - Analyst Blog

By: Zacks.com
Posted: 10/11/2013 9:58:00 AM
Referenced Stocks: EPAM;INFY;MFG;ORCL;RCL

Infosys Technologies Ltd ( INFY ) reported second quarter fiscal 2014 earnings per ADS from continuing operations of 67 cents, missing the Zacks Consensus Estimate of 70 cents by 4.3%. Quarterly earnings were down 10.7% year over year and 8.2% sequentially. Despite reviving macro economic trends, weakness in currency affected the second quarter profits.

Quarter Details

During the quarter, total revenue for the quarter was $2.1 billion, up 15.0% year over year and 3.8% sequentially. The company witnessed volume growth, client additions, five large deal wins and increased sales momentum in its big data and cloud offerings.

Infosys was also recognized as the Major Player in its IDC MarketScape for Cloud Professional Services, by IDC. During the quarter, the company added 68 clients in total.

Infosys continues to strengthen its expertise and competencies in Oracle Corporation ( ORCL ) and SAP AG 's ( SAP ) practices. During the reported quarter, Infosys was rated as the leader in Gartner's Magic Quadrant for Oracle Application Implementation and Application Management Services, and for SAP Application Management services.

This apart, its co-founder Narayana Murthy who joined the company in Jun 2013, outlined some strategies to bring the company back on its profit making track. The initiatives set by the Murthy primarily focused on winning large deals while maintaining the market share. Second, he focussed on addressing the high costs of the company through a cost optimization strategy. Murthy also emphasized improving employee morale through efficient rewards.

Revenue by Geographical Segment

During the reported quarter, Infosys reported strong year-over-year growth in geographic revenues. Revenues from North America grew 61.5% followed by Europe where revenues increased 24%. Coming next in the line is Rest of World with revenuegrowth of 12.1% followed by India with 2.4% growth.

Revenues by Industry Segment

Revenues in the Insurance, Banking and Financial services (IBFS) grew 33.4% while Manufacturing segment (MFG) revenues grew 23.2%. Revenues from the Retail and Life Sciences division (RCL) grew 24.2% while revenues in Energy, Utilities, Communications & Services (ECS) grew 19.2% year over year. 

Income

The company recorded an operating profit of $451 million compared to $472 million in the prior-year quarter, reflecting a decline of 4.4% year over year. The operating margin also contracted 504 basis points year over year to 21.8% from 26.7% in the comparable prior-year quarter. The decline in margin was largely due to the currency volatility. During the reported quarter, the Rupee depreciated by 11%.   

Net profit after tax was $383 million for the quarter, down 11.1% year over year and 8.4% sequentially.

Balance Sheet

Infosys maintains a strong liquidity position and had cash & cash equivalents of $4.3 billion as of Sep 30, 2013 compared to $4.1 billion as of Jun 30, 2013.

Outlook

Concurrent with the earnings release, management revised its revenue outlook for fiscal 2014. Revenues are expected to increase in the range of 9% to 10% against 6% to 10% mentioned earlier.

Infosys currently has a short-term Zacks Rank #3 (Hold). However, another company EPAM Systems, Inc. ( EPAM ) operating in the same industry, currently holds a Zacks Rank #2 (Buy).



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