Gartner Steps Over a Low Bar With Its Solid Third Quarter

Gartner (IT 1.62%) announced third-quarter 2019 results early Thursday, delivering slightly better-than-expected metrics on both the top and bottom lines as clients continue to recognize what the research and advisory specialist brings to the table.

The company also followed by reaffirming the guidance that left shares reeling three months ago, leaving the stock to rebound nearly 5% in today's afternoon trading as skittish investors collectively breathed a sigh of relief. 

Let's look at how Gartner kicked off the second half relative to the same year-ago period:

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

"Another quarter of double-digit contract value growth ..."

Investors should keep in mind that those GAAP results include unusual items like acquisition expenses and contributions from divested operations. Excluding these items, adjusted (non-GAAP) revenue climbed 10% (or 11% at constant currencies), and net income arrived at $64 million, or $0.70 per share, down from $0.85 per share in the same year-ago period.

That bottom-line decline might not sound encouraging, but most analysts were anticipating adjusted earnings of only $0.45 per share on revenue closer to $992 million.

"We delivered another quarter of double-digit contract value growth, validating the compelling value proposition we offer our clients and prospects," CEO Gene Hall said. "We accelerated the pace of share buybacks during the quarter and will continue to deliver long-term growth in cash and earnings to our shareholders."

As broken down by segment, the contract value for Gartner's Global Technology Sales (GTS) climbed a currency-neutral 13% to $2.6 billion this quarter, while Global Business Sales (GBS) continued to trail with more modest 3% growth to $600 million (albeit accelerating from a 1% year-over-year increase last quarter).

During Gartner's previous conference call in July, management partly attributed its lowered guidance to investments aimed at capturing incremental growth opportunities in GBS, which effectively reduced its number of open sales territories.

Still, top-line growth was broad-based, with research revenue increasing 9% (10% at constant currency) to $841 million, conferences revenue jumping 16% (19% at constant currency) to $66 million, and consulting revenue rising 18% (20% at constant currency) to $93 million. 

A cautious view?

But despite its outperformance in the third quarter (at least, relative to Wall Street's views), Gartner opted to reaffirm its full-year outlook for revenue in a range of $4.22 billion to $4.26 billion, with adjusted earnings per share ranging from $3.39 to $3.64. For what it's worth -- and with shares around 15% below their 52-week high set ahead of Gartner's Q2 report in July -- this guidance appears to have appeased investors who feared macro uncertainty might result in another disappointing quarterly update today.

Perhaps Gartner's outsized earnings beat helped as well. But even so, I prefer to give the company at least another quarter before I'm persuaded that it's on track to return to sustained top- and bottom-line growth over the long term.