May 7, 2014 / 10:18 AM / 5 years ago

Cognizant says Obamacare to weigh on sales this quarter

(Reuters) - Technology outsourcing company Cognizant Technology Solutions Corp said growth in its North America healthcare business would remain slow this quarter due to lower spending by customers adjusting to U.S. healthcare reforms.

Cognizant’s shares fell as much as 7 percent after the company also forecast revenue for the quarter below analysts’ estimates.

The company, which has grown at a blistering pace in the last few years, said it expects revenue to grow by at least 16.5 percent in 2014, its slowest in five years.

“They are doing all the right things, it’s a question of the end-markets they are selling to,” Ralph Bassett, a portfolio manager at Aberdeen Asset Management, told Reuters.

Aberdeen held 1.5 million shares in Cognizant at the end of March.

The company provides services such as claims processing, billing and call center operations to insurers, hospitals and some state-run healthcare exchanges set up under President Barack Obama’s Affordable Care Act, also known as Obamacare.

Users have been slow to adapt to the changes as the exchanges, including the federal site, have been plagued by glitches that stymied access for millions of people.

“True consumption of healthcare services was down in January and February as people adjusted to the evolving healthcare reimbursement structure,” Cognizant President Gordon Coburn said on a call.

Revenue growth in North America, Cognizant’s largest market, slowed to 16.1 percent in the first quarter ended March 31 from 16.3 percent a year earlier.

“We do not expect a significant rebound in the second half in healthcare,” Coburn told Reuters in an interview.

Revenue from the company’s global healthcare business grew 20.8 percent, accounting for a quarter of the total revenue.

Revenue from Europe rose 35 percent, the strongest growth since the company started breaking out revenue by region two years ago. Europe contributed about 20 percent to total revenue.

India-based rivals Tata Consultancy Services Ltd and Infosys Ltd also reported better-than-expected profit for the period.

Cognizant forecast revenue of $2.50 billion to $2.53 billion for the current quarter, slightly below the average analyst estimate of $2.54 billion, according to Thomson Reuters I/B/E/S.

Net income rose 23 percent to $348.9 million, or 57 cents per share, in the first quarter. Revenue increased about 20 percent to $2.42 billion.

Analysts on average had expected earnings of 55 cents per share on revenue of $2.43 billion.

Shares of Teaneck, New Jersey-based Cognizant, most of whose employees are based in India, were down 4.4 percent at $47.03 in afternoon trading on the Nasdaq on Wednesday.

Additional reporting by Soham Chatterjee in Bangalore; Editing by Kirti Pandey and Saumyadeb Chakrabarty

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