July 27, 2010 / 11:09 AM / in 7 years

UPDATE 2-CGI Group profit rises but revenue, orders weigh

* Sales in Europe sluggish; outlook tepid

* Q3 EPS meet expectations

* Stock drops as much as 8 pct (Recasts with analyst comment, stock price move)

VANCOUVER, July 27 (Reuters) - CGI Group Inc (GIBa.TO) GIB.N posted a rise in profit on Tuesday but its stock dropped sharply on weaker than expected revenues and orders.

Shares in CGI, Canada's biggest technology outsourcing and consulting company, fell as much as 8 percent as results showed its sales in Europe remained sluggish, with no immediate recovery in sight.

"European performance continued to remain under pressure as the downturn there has lagged the North American experience," Desjardins Securities analyst Maher Yaghi said in a note to clients.

By early afternoon, CGI's stock was off its lows at C$15.46, down 77 Canadian cents or 5 percent on the Toronto Stock Exchange.

Earlier, CGI, which provides computer services to companies ranging from Bombardier Inc (BBDb.TO) to Cirque du Soleil, said third-quarter net profit rose 12 percent to C$85.9 million ($83.4 million), or 30 Canadian cents a share, on the back of wider margins.

The earnings were in line with analyst forecasts and up from C$76.7 million, or 25 Canadian cents a share, a year ago.

But revenue fell 5 percent to C$901.6 million, mostly because of a weaker U.S. dollar and euro, and were below analysts' forecasts of C$935.4 million.

The company's quarterly profit margin stood at 9.5 percent, up from 8 percent, a year earlier.

CGI said it booked C$838 million in new contracts during the quarter, below what the market had expected, because of cancellations or deferrals of discretionary projects in Europe. Its backlog of signed orders stood at C$11.4 billion at the end of June.

Acquisition-hungry CGI recently extended to Aug. 2 its bid, worth about $900 million, to buy U.S.-based IT services company Stanley Inc SXE.N.

The deal would expand CGI's U.S. government agency work into such areas as defense, cyber-security and intelligence. Analysts say it would also increase the company's U.S. revenue to almost 50 percent of sales, from 35 percent.

Chief Executive Michael Roach said in May that CGI still has an appetite and capacity to seek further acquisitions in the United States and Europe.

$1=$1.03 Canadian Reporting by Nicole Mordant and Koustav Samanta in Bangalore; editing by Rob Wilson

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