Gartner (NYSE:IT) released better-than-expected second-quarter 2019 results on Tuesday morning, detailing broad-based growth from its three core business segments. But the research and advisory services leader followed by reducing its full-year revenue and earnings guidance, driving shares down nearly 19% in today's early trading.

Let's dig deeper to see what Gartner accomplished over the past few months, and why the company felt it necessary to temper expectations for the coming quarters.

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Image source: Getty Images.

Gartner results: The raw numbers

Metric

Q2 2019

Q2 2018

Change

GAAP revenue

$1.071 billion

$1.001 million

7%

GAAP net income

$103 million

$46 million

123.9%

GAAP earnings per diluted share

$1.13

$0.50

126%

Data source: Gartner. GAAP = generally accepted accounting principles.

What happened with Gartner this quarter?

  • Excluding contributions from divested businesses, Gartner's adjusted revenue climbed 9% (or 12% at constant currencies), and earnings per share grew 41% to $1.45.
  • While we don't usually pay much attention to Wall Street's demands, most analysts were modeling lower adjusted earnings of $1.18 per share on roughly the same revenue.
  • Adjusted revenue by segment: 
    • Research revenue climbed 8% (10% at constant currency) to $826 million,
    • conferences grew 27% (29% at constant currency) to $141 million, and
    • consulting revenue increased 7% (10% at constant currency) to $104 million.
  • Global business sales (GBS) contract value inched up 1% at constant currency to $0.6 billion.
  • Global technology sales (GTS) contract value rose 14% at constant currency to $2.6 billion.
  • Gartner generated operating cash flow of $227 million and free cash flow of $197 million.

What management had to say

In the press release, CEO Gene Hall stated:

We delivered another strong quarter across our three businesses: Research, Conferences, and Consulting. We've equipped Global Business Sales with the resources, training and tools to achieve success and we're beginning to see a return. We continue to make calculated investments in our business and are well-positioned for sustained long-term, double-digit growth.

Looking forward

For full-year 2019, however, Gartner now expects revenue in the range of $4.215 billion to $4.26 billion, representing growth of 9% to 10% from 2018 but also a reduction from its previous guidance, which called for a range of $4.22 billion to $4.315 billion. The company also revised its full-year earnings outlook to call for a per-share range of $3.39 to $3.64 (or flat to down 7% year over year), compared to its old target range of $3.82 to $4.19.

During the subsequent conference call, Gartner executives explained that they've increased expectations for the consulting business for the year, but also "modestly" reduced their outlook for research revenue given lower-than-expected non-subscription services sales. In addition, Gartner decided to make additional investments to capture opportunities in the GBS side of the business, notably reducing its number of open territories. Though these investments should begin to yield returns as the company moves into next year, in the meantime they'll have a negative impact on 2019 earnings.

That's fair enough; it's hard to blame Gartner for allocating capital where it sees the best opportunities for incremental growth. But our market hates being told to hurry up and wait, and the stock is responding in kind today.