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Genpact (G) Beats on Q4 Earnings as Revenues Increase Y/Y

Genpact Limited G reported earnings (including stock-based compensation) of 41 cents per share in fourth-quarter 2016, which beat the Zacks Consensus Estimate by a nickel. Non-GAAP earnings (excluding share based compensation) jumped 26.5% year over year to 43 cents per share.

Revenues increased 5.4% from the year-ago quarter to $681.7 million which missed the Zacks Consensus estimate of $684 million.

Global clients (85% of total revenue) revenues climbed 9% year over year (up 11% at constant currency) to $576 million, while revenues from General Electric GE fell by 10% to roughly $106 million (15% of total revenue).

For full-year 2016, the company reported revenues of $2.57 billion that was up 4% on a year-over-year basis (up 6% on constant currency). Adjusted diluted earnings per share came in at $1.46, up 16% year over year.

New bookings also increased by 3% to $2.65 billion from $2.59 billion in 2015.

We note that shares of Genpact underperformed the Zacks Outsourcing industry over the last one year. While the industry returned a gain of 17%, the stock declined 1.4% over the same time frame.

The considerable underperformance of the stock could be attributed to softness in the GE and IT segments. Additionally, the GE divestiture and the acquisition of Headstrong by the IT segment are likely to have an adverse impact on the margins in the coming quarters also.

Overall, total BPO revenues (80% of total revenues) advanced 8% year over year to $548 million. Global client BPO revenues of $469 million jumped almost 12% (up 14% at constant currency).

On the other hand, GE BPO revenue was $79 million, which declined 10% on a year-over-year basis, primarily due to delays and phase out of some of the processes related to the divested GE Capital.

Total IT revenue (20% of total revenue) came in at $134 million that declined 4% when compared to the year-ago quarter.

However, global client ITO revenues of $107 million dipped 3% year over year in the reported quarter primarily due to reduced spending by companies on deploying, maintaining and running legacy IT infrastructure.

Also, cutbacks in the discretionary technology projects by the companies led to a decline of 9% in revenues for GE IT revenue, on a year-over-year basis, which summed $27 million.

Genpact Limited Price, Consensus and EPS Surprise

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

Operating Details

Selling, general & administrative (SG&A) expense expanded 320 bps year over year to 25.0% in the reported quarter.

Non-GAAP operating margin (including stock based compensation) advanced 200 bps from the year-ago quarter to 15.7% driven by higher gross margin base.

Balance Sheet & Share Repurchase

As of Dec 31, 2016, cash and cash equivalents were $422 million as compared with $450 million as of Dec 31, 2015.

During the fourth-quarter, Genpact repurchased nearly 4.3 million shares for $103 million from the secondary market. For the full year of 2016, the company repurchased 13.9 million shares of its company from the secondary market that was worth $345 million.

Guidance

Genpact's management expects first-quarter 2017 to remain flat, while a 3%-6% growth is likely to show up in the second half of 2017.

For full-year 2017, revenues are now anticipated in the range of $2.61-$2.68 billion. The net foreign exchange adverse impact is estimated to be approximately $33 million.

Genpact anticipates a 4%-7% revenue growth (5%-8% on a constant currency basis) in the Global Client segment. Within this segment, Global Client BPO is projected to grow nearly 10% on a constant currency basis, while Global Client ITO revenues are anticipated to decline about 5%-7% chiefly due to an accelerated second-half decline in 2016.

On the other hand, the divestiture of GE Capital will likely have its adverse impact on GE revenues in 2017, which translates to a 13%-15% decline in GE revenues going ahead.

Non-GAAP operating income margin are expected to be 15.7% in 2017. Earnings are anticipated to be in the range of $1.53-$1.57 per share.

Cash flow from operations is projected to increase almost 4% in 2017. Capital expenditure is anticipated to comprise nearly 3%-3.5% of total revenue.

Zacks Rank

Genpact has Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader technology space include Applied Optoelectronics AAOI , and Bridgeline Digital, Inc. BLIN each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here.

Notably, the consensus estimate for Applied Optoelectronics' current year improved to 94 cents from 80 cents, over the last 30 days.

Similarly, the consensus estimate for Bridgeline Digital's current year narrowed down to a loss of 9 cents from loss of 10 cents, over the last 60 days.

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Bridgeline Digital, Inc. (BLIN): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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