Cognizant Foresees 'Soft' Business From Health Care, Financial Services

Consolidation and economic uncertainty in two key customer segments will mean a soft start to the year for solution provider giant Cognizant Technology Solutions, its CEO said Monday.

Francisco D’Souza said Cognizant’s business in health care and financial services, which accounted for about 70 percent of the company’s revenue during the fourth quarter of 2015, will be soft in the current quarter.

During Cognizant's fourth-quarter and full-year earnings call, held Monday morning, D’Souza said Cognizant came to that conclusion after reviewing its clients’ budgets.

[Related: Cognizant Acquires TriZetto To Expand Health-Care Offerings]

Cognizant pegged its revenue forecast for the current quarter at between $3.18 billion and $3.24 billion, up from $2.91 billion in the first quarter of last year.

D'Souza said the company anticipated a softening in its health care base after that vertical experienced large growth following implementation of the Affordable Care Act and Cognizant's $2.7 billion acquisition of health care solutions provider giant TriZetto at the end of 2014.

He said the health care industry is seeing a large amount of consolidation, and that because of it, Cognizant's clients are deferring technology upgrades until their merger plans are clearer. As a result, they intend to keep the IT portions of the consolidations to a minimum, he added.

However, D'Souza said he’s confident the industry will jack up its IT spending later this year thanks to the number of deals the company has in its pipeline because of the TriZetto acquisition.

When it comes to financial services, D’Souza said, "the outlook is a little different." He cited ’a lot of macroeconomic concerns around the world," such as market volatility in China and the falling price of oil in the United States.

With global economic concerns creating an unpredictable future, financial institutions are finding it difficult to invest, according to D’Souza.

He said Cognizant's banking clients have been taking a cautious approach by putting some projects on hold and adopting a "wait and see" approach toward its future IT investments.

Meanwhile, the falling price of oil has been drag on revenue for energy companies, and that could impact bank that have loaned them money with an increased risk of defaults.

For its part, D'Souza said, Cognizant cannot see when China’s economic issues will be resolved. Therefore, the company has adopted the same approach.

"I think we are going to watch that situation over the next quarter or two and see how that unfolds," he said.

Investors did not seem to take the news lightly and shares of the company fell close to 7.7 percent Monday.

Cognizant reported its first quarterly revenue miss in six quarters, with revenue up 17.9 percent from the fourth quarter of 2014, to $3.23 billion, slightly below the Zacks consensus estimate of $3.24 billion. Meanwhile, income beat analysts’ expectations, rising to $423.4 million (74 cents per share) from $362.9 million. The EPS number beat the Zacks estimate by three cents.

The company also reported $12.42 billion in revenue for the full year, an increase of 21 percent from 2014, and income of $1.62 billion, up from $1.44 billion.