Accenture Matches EPS Est, Tops Rev - Analyst Blog

Accenture plc (ACN) reported fourth quarter fiscal 2012 earnings per share (EPS) of 88 cents, in line with the Zacks Consensus Estimate. Earnings decreased 3.5% from the year-ago quarter due to a higher tax rate, lower non-operating income as well as foreign-exchange headwinds, partially offset by higher revenues and margins and lower share count.

Revenues

Accenture reported fourth quarter net revenue of $6.84 billion (including a 7.0% negative foreign exchange impact), up 2.2% from $6.69 billion in the year-ago quarter. Net revenue was roughly in line with the higher end of the company’s guided range of $6.6 billion to $6.85 billion and higher than the Zacks Consensus Estimate of $6.74 billion. Revenue growth moderated due to weak segment performances and Euro issues.

Among the operating segments, Financial Services generated high single-digit revenue growth, which was supported by moderate single-digit growth in Health & Public Services. Product and Resources revenues were roughly in line with the year-ago level. Communications, Media & Technology registered a 3.0% decline. There was negligible growth in Other revenues.

Consultingrevenue dropped 4.0% to $3.74 billion. However, Outsourcing revenues increased 10.0% from the year-ago quarter to $3.10 billion.

Geographically, year-over-year increases of 5.0% and 11.0% were seen in top-line contributions from the Americas and the Asia Pacific, respectively. Accenture’s performance in the EMEA region amidst the prevailing debt concern lacked luster, with a fall of 4.0% year over year.

Bookings

Total new bookings for the fourth quarter were $9.2 billion, reflecting a negative 9.0% foreign-currency impact. Consulting bookings were $4.3 billion and outsourcing bookings were $4.9 billion.

Operating Results

Fourth quarter gross margin dropped 20 basis points year over year to 32.9%. Utilization rate remained unchanged at 87.0%. The decrease in gross margin was due to higher subcontractor costs, recruitment and training costs as well as an increase in annual compensation. The attrition rate fell to 12.0% from 14.0% in the year-ago quarter.

Total operating expenses increased 1.2% year over year due to an increase of 2.2% in sales and marketing expenses and decrease of 0.6% in general and administrative expenses. Operating margin was 13.8%, flat year over year.

Accenture reported net income of $630.1 million or 88 cents a share, down from $672.2 million or 91 cents in the year-ago quarter. One-time items in the quarter were insignificant. The effective tax rate was 32.8% as against 27.0% in the year-ago quarter. The higher tax rate was primarily due to a net increase in reserves and a change in the geographic mix of income.

Balance Sheet & Cash Flow

Operating cash flow was $1.71 billion in the reported quarter compared with $1.22 billion in the prior quarter. Net property and equipment additions were $115.3 million, up from $90.5 million in the prior quarter. Total cash balance increased to $6.6 billion from $5.6 billion in the preceding quarter. Accenture carries no long-term debt burden.

Share Repurchase and Dividend

During the fourth quarter, Accenture repurchased 12.0 million of its common outstanding shares for a total value of $696.0 million. The activity includes 10.4 million shares repurchased in the open market. As of August 31, 2012, Accenture had roughly 697 million shares worth $4.2 billion outstanding under the current authorization.

Accenture also paid a semi-annual cash dividend of 81 cents per share in the reported quarter. The dividend payout rate is 20.0% higher than the prior payout.

Guidance

For the first quarter of fiscal 2013, Accenture expects net revenue in the range of $7.1 billion to $7.35 billion, reflecting a solid sequential comparison. This figure was arrived at after considering a 3.0% negative foreign-exchange impact. The company did not provide any first quarter update on EPS, but the Zacks Consensus Estimate is pegged at $1.01.

For full fiscal 2013, management expects net revenue to grow in the range of 5.0% to 8.0%. Expectation for new bookings is in the range of $31.0 billion to $34.0 billion. The company continues to expect operating margin in the range of 14.0% to 14.1% and annual tax rate between 26.0% and 27.0%. Diluted EPS expectation is between $4.22 and $4.30. However, the Zacks Consensus Estimate of $3.83 is much lower than the company’s guidance range.

Accenture also forecasts operating cash flow in the range of $3.2–$3.5 billion; property and equipment additions of roughly $420.0 million; and free cash flow in the range of $2.8 billion to $3.1 billion.

Accenture’s fiscal year outlook assumes a foreign-exchange impact of negative 1.0%.

Recommendation

We find Accenture’s fourth quarter results a mixed bag with the top line beating the Zacks Consensus Estimate and bottom line matching the same. Growing focus on outsourcing business, operating cost optimization, new booking growth and continuous return of shareholder value were the quarter’s positives. Though weak consulting business could be a reason for concern, management seems confident that growth in outsourcing will mitigate the loss. Also, management’s commentary at the conference call to continue investing in priority industries (such as Communications), emerging markets, and geographical expansion as well as to boost its brand value could act as a catalyst for the stock.

We are encouraged by the steady flow of new business and believe that the trend will continue. However, increasing competition from International Business Machines Corp. (IBM), a strained spending environment and Accenture’s broad European exposure (roughly 40.0%) may temper its growth prospects to some extent.

Currently, Accenture has a short-term “Hold” rating, denoted by the Zacks #3 Rank.

 
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