What to Expect From Infosys' Earnings

Infosys (NYSE: INFY  ) will release its quarterly report on Thursday, and shares of the Indian information-technology consulting company have performed well after recovering from a huge decline in early 2013. The question going forward, though, is whether Infosys can hold off rivals IBM (NYSE: IBM  ) and Accenture (NYSE: ACN  ) and claim its fair share of IT business if the industry starts to bounce back. With early signs of businesses getting interested in spending on information technology again, Infosys needs to make the most of the opportunity it has.

Ordinarily, businesses tend to spend on information technology when it can enhance their productivity enough to make the upfront cost a worthwhile investment. During this economic recovery, though, business customers have been more reluctant than usual to invest in long-term projects, and that has presented problems for IT companies like Infosys, which rely on ongoing activity to generate profits. The big question is whether pent-up demand could send Infosys and peers IBM and Accenture soaring once corporate customers open the floodgates to capital spending. Let's take an early look at what's been happening with Infosys over the past quarter and what we're likely to see in its report.

Stats on Infosys

Analyst EPS Estimate

$0.75

Change From Year-Ago EPS

(1.3%)

Revenue Estimate

$2.09 billion

Change From Year-Ago Revenue

9.2%

Earnings Beats in Past 4 Quarters

3

Source: Yahoo! Finance.

What's next for Infosys earnings this quarter?
In recent months, analysts have become cautiously optimistic about Infosys' earnings prospects, raising their December-quarter estimates by a penny per share and their full-year fiscal 2015 projections by a dime per share. The stock has also reflected that optimism, rising 16% since early October.

Infosys started the quarter off well, with solid results from the previous quarter that pointed to improving conditions in the IT industry. Quarterly revenue jumped 15% from year-ago levels, and even though profit fell 11%, Infosys issued a fairly rosy outlook, expecting 9% to 10% revenue growth for fiscal 2014. That flew in the face of more pessimistic assessments from previous quarters that had suggested an ongoing slump in IT spending.

On a less positive note, Infosys had to settle lawsuits brought by state and federal regulators in the U.S., paying $34 million to address allegations that it brought Indian workers to the U.S. using inappropriate visas with erroneous paperwork. Infosys already had a reserve set aside to cover the cost of the settlement, but so long as it's competing with IBM, Accenture, and other outsourcing and IT services companies, Infosys can't afford to cut corners with immigration laws, especially given the already sensitive attitude many have toward outsourcing practices in general.

Macroeconomic concerns have also affected Infosys. India saw its currency fall sharply against the U.S. dollar during 2013 as sluggish economic growth in the emerging-market nation and substantial inflationary pressure led to concerns about balancing monetary policy against the need for long-term growth prospects. For Infosys, though, a falling rupee makes its services more competitive in comparison to Accenture and IBM to the extent that it can provide those services in Indian currency terms.

In the Infosys earnings report, watch to see if the company provides any further updates on revenue guidance for this fiscal year and next. With Accenture having posted reasonably upbeat results last month, Infosys needs to answer in kind if it wants to keep up with its peers in the IT services and outsourcing industry.

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