May 27, 2019

Cognizant opt to Cut Jobs: The worst Hit to Mid-Level Employee

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“The First Fiscal Quarter was a Tough One for Cognizant”.

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US-based IT firm Cognizant may opt for more job cuts. This all is because the company’s headcount additions were not in sync with the revenue growth seen in the past two quarters. Cognizant’s cuts its revenue guidance by almost half ranging from 3.6 to 5.1 percent for 2019. It has already given an unpaid separation package to 400 senior executives in 2017 as part of its cost-cutting measures, said the report citing unspecified sources. “But this time, the job cuts will be higher and would be even more broad-based, encompassing various levels of employees, the sources told the newspaper”.

The main part of these job cuts is likely to happen in India. Where the firm had a total worker base of 2, 81,600 in 2018, with around 70 % of its total staff located in India, said the report. Though, the company on Thursday reported year-over-year revenue growth of 5.1 %. That growth missed analyst expectations according to Seeking Alpha.

“The First Fiscal Quarter was a Tough One for Cognizant”.

In addition, to the slow revenue growth, the company also reported a net income of $441 million, down over 15 % from the prior year period. Earnings per share on a GAAP basis were 77 cents, down from last year’s 88 cents. On a non-GAAP basis, the company reported earnings per share of 91 cents compared to last year’s 94 cents. GAAP operating margin for the quarter was 13.1 percent, down from last year’s 17.7 percent.

The company missed earnings per share expectations by 13 cents per share, according to Seeking Alpha, and lowered its forward-looking estimates.

What’s the matter, actually?

Cognizant CEO Brian Humphries, who started his role just this past February, acknowledged the company’s disappointing first-quarter performance, and that the company has a lot of work to do.

Besides bringing the costs down, Humphries said he was going to concentrate on investing so that Cognizant could go back to clocking stronger growth rates. “Investments, certainly, can take many forms, including marketing, partnerships, re-skilling, increased sales coverage or increased spend on platforms tools and automation,” he told in a post-earnings conference call. Humphries has a difficult job ahead of him, as he tries to repair the damage done as a result of the Elliott Management pushing Cognizant to change its business strategies. The analysts have blamed Elliott Management, the activist hedge fund that pushed the company to take business decisions that hurt the company’s competitiveness and crippled its growth. The activist investor which owned 4% stake in the company had in November 2016 forced Cognizant to change its strategy on margins (cut costs to boost margins), return billions of dollars to shareholders and restructure its board. The company under pressure from Elliot Management had in February 2017 committed $3.4 billion in share repurchases and dividends over two years, prune staff, adopt automation and switch its emphasis on the higher margin digital business.

Cognizant opt to cut jobs: A worst hit to Mid-level employee