Gartner Beats And Raises Again, But A Fading Ex-Federal Core Tempers A 49% Rally

Gartner delivered another large beat-and-raise quarter. The question is how much of it reflects a healing core business and how much comes from a federal recovery, cost discipline and a shrinking share count. Adjusted EPS of $3.59 topped the $2.86 consensus by 18.9% and cleared the $3.02 Earnings Whisper number comfortably, rising 30.1% year over year. Revenue of $1.505 billion beat the $1.48 billion consensus by 1.7%, though it fell 1.3% from a year ago. Management raised full-year guidance on every major line for the third straight quarter, and total contract value growth accelerated again. Beneath that, the commercial core outside the U.S. federal government kept slowing, and management walked back a growth target it had affirmed just three months earlier. That is the central tension.

The quality of the earnings beat deserves scrutiny. The revenue decline is largely an artifact of the February 2026 sale of Digital Markets, which contributed $55 million a year ago. Excluding it, adjusted revenue grew 2.4%, or 2.6% FX neutral. The leverage came further down the income statement:

• Adjusted EBITDA excluding the divested operation rose 7.5% to $364 million.
• Insights posted a 77.6% contribution margin, with gross contribution up 2.9% on 1.7% revenue growth.
• Adjusted net income rose to $230 million from $207 million, a far smaller increase than the per-share figure.
• Diluted shares fell to 63.9 million from 75.0 million after $1.7 billion of buybacks over four quarters, and that share reduction drove much of the 30% adjusted EPS growth.

GAAP EPS jumped to $3.35 from $0.47. That jump mostly reflects the absence of last year's $150 million Digital Markets goodwill impairment, not a sixfold improvement in operations. Free cash flow edged up 2.2% to $275 million.

The contract value story is genuinely improving at the total level. CV growth reached 2.5%, up from 2.0% in Q2 and roughly 1% in the two quarters before that. Other indicators also improved:

• GTS wallet retention climbed to 98% from 97%.
• Downsell was stable for a second quarter.
• U.S. federal net new CV improved to about $15 million from about $11 million.

Strip out the federal rebound, though, and the trend points the other way. Ex-federal CV growth slid to 2.8%, down from 3.3% in Q2, 3.5% in Q1 and roughly 4% at the end of 2025. In Q2 management endorsed a 4%-plus ex-federal exit rate. It now calls that outcome unlikely. GTS new business fell 4% year over year after rising 2% in Q2, and GBS new business declined 3%. Bears have legitimate ammunition in that reversal.

Management cited several fresh headwinds:

• The Middle East conflict is hurting selling and retention in a previously fast-growing Gulf business.
• Large tech-vendor layoffs have resumed, making renewals and upsell harder.
• Sales cycles remain longer than historical norms.
• The annual price increase of about 3% sits at the low end of the historical range.
• Same-conference growth slowed to about 8% from 12%.
• Analyst re-hiring will add costs back in Q4 and 2027.

On the catalyst side, management described rising demand from clients struggling to get a return on enterprise-wide AI tool deployments, and said AI is now the top topic across every role it serves. Consulting backlog rose about 9% to $217 million, and IT Symposium Orlando attendance grew by double digits.

The raised outlook calls for:

• Adjusted EPS of at least $14.65, up from $14.00 in Q2 and $12.30 initially.
• Adjusted EBITDA of at least $1.615 billion, with margin of at least 25.2%.
• Free cash flow of at least $1.235 billion.

The revenue guide of at least $6.405 billion is the exception. It was raised from Q2 but still sits below the initial guide of at least $6.455 billion. The year's upgrades have been driven by margins, not top-line growth.

The market setup is more complicated than the surprise implies. Shares have rallied 49.3% since the opening after the August report, from $157.58 to $235.26. That move took the stock from its inter-earnings low of $155.86 on report day to within 1% of the quarter high of $237.54, set the day before this release. The stock now trades nearly 39% above its 200-day moving average. Gartner itself slowed repurchases to $138 million from $547 million in Q2 as the price climbed. Investor sentiment improved from -0.67 to -0.53 but remains firmly negative, so a meaningful skeptical contingent persists despite the rally. The Earnings Whispers trend readings are mostly positive, with sequential growth neutral.

The bottom line is that Gartner executed well on margins, retention, federal recovery and capital return, and its guidance keeps moving higher. However, the ex-federal deceleration, weaker new business and abandoned 4% exit-rate target show the commercial core has not yet turned. With the stock entering the report near the top of a steep rally, the burden now shifts to proving that total CV acceleration can outlast the federal tailwind.

Read our earnings preview for Gartner, Inc.: https://www.earningswhispers.com/article/IT/21488

This earnings review was originally published on Earnings Whispers.

This article is for informational purposes only and is not investment advice. Earnings Whispers and its staff may hold positions in the securities mentioned. It is AI-assisted, based on proprietary Earnings Whispers data and company reports, and edited by Earnings Whispers staff.