) reported second-quarter fiscal 2014 earnings per share of
$1.03, missing the Zacks Consensus Estimate of $1.04. On a
year-over-year basis earnings increased 3%. Year-ago quarter's
earnings excluded benefits from certain U.S. federal tax
liabilities and reorganization benefits.
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The year-over-year increase was attributed to higher revenues,
lower effective tax rate and lower share count, which more than
offset lower non-operating income.
Revenues and Bookings
Although Accenture's second-quarter net revenue increased 1.0% on
a year-over-year basis to $7.13 billion it lagged the Zacks
Consensus Estimate of $7.22 billion. Net revenue also were within
management's guided range of $6.95 billion to $7.25 billion,
primarily aided by higher-than-expected Outsourcing revenues (up
4.0% on a year-over-year basis to $3.43 billion), which more than
offset Accenture's Consulting revenues, down 1% year over year to
Among the operating segments, Health & Public Services
revenues decreased1.0% from the year-ago quarter to $1.18 billion
while revenues from Financial Services were up 4.0% from the
year-ago quarter to $1.56 billion.
Accenture's revenues from Products of $1.75 billion increased
4.0% while revenues from Resources decreased 2.0% from the
year-ago quarter to $1.22 billion. Communications, Media &
Technology revenues remained flat on year-over-year basis at
Geographically, revenues from the Americas, and Europe, the
Middle East and Africa (EMEA) increased 2.0% each on a
year-over-year basis, while revenues from the Asia Pacific region
recorded a decline of 7.0% from the year-ago quarter.
Accenture reported new bookings of $10.1 billion during the
quarter, which were down 2% from the year-ago quarter primarily
due to foreign currency fluctuations. Consulting bookings and
Outsourcing bookings for the quarter amounted to $4.6 billion and
$5.5 billion, respectively.
Second-quarter gross margin decreased 30 basis points (bps) from
the year-ago quarter to 31.3%, primarily due to higher cost of
Operating expenses increased 20.0% from the year-ago quarter to
$1.28 million, primarily due to the absence of reorganization
benefit that positively impacted the year-ago quarter results. As
a percentage of net revenue, operating expenses expanded 280 bps
to 17.9% from the year-ago quarter.
Accenture's operating income decreased 18.2% from the year-ago
quarter to $951.3 million, while margins contracted 320 bps to
13.3%, primarily due to higher operating expenses. Moreover,
pricing pressures and high payroll costs impacted operating
results. Accenture reported net income of $714.2 million or $1.03
Balance Sheet & Cash Flow
Accenture exited the quarter with total cash balance of $3.68
billion versus $4.53 billion in the preceding quarter.
Accenture's long-term debt balance at the end of the second
quarter was $26.3 million.
Operating cash flow was $292.4 million in the reported quarter
compared with $181.0 million in the prior quarter while free cash
flow for the quarter was $216.0 million.
Share Repurchase and Dividend
Consistent with Accenture's policy of returning cash to its
shareholders, the company repurchased 9.2 million shares for a
total value of $739.0 million during the second quarter. The
activity included 6.5 million shares repurchased in the open
market. Accenture did not pay dividends for the quarter.
For the third quarter of 2014, Accenture expects net revenue
between $7.40 billion and $7.65 billion. The Zacks Consensus
Estimate is pegged at $7.54 billion. The company did not provide
any guidance for third quarter earnings.
The company modified its guidance for fiscal 2014. Accenture
expects net revenue to grow in the range of 3.0% to 6.0% in local
currency.. It has also upped its earnings per share outlook from
the range of $4.44-$4.56 to $4.50-$4.62. The Zacks Consensus
Estimate is pegged at $4.50 per share .The company expects new
bookings in the range of $33 billion-$36 billion (previous
guidance of $32 billion-$35 billion).
For fiscal 2014, the company expects its operating margin to
range between 14.3% and 14.5%. Operating cash flow is expected in
the range of $3.3 billion-$3.6 billion (previous guidance of $3.6
billion-$3.9 billion), while free cash flow is likely to be in
the range of $2.9 billion-$3.2 billion (previous guidance of $3.2
Accenture delivered a dismal second-quarter results, wherein both
the top and bottom lines missed the Zacks Consensus Estimate.
However, revenues increased on a year-over year basis reflecting
an increased focus on the Outsourcing business, new bookings
growth and continuous return of shareholders' value. Moreover,
the company provided an encouraging guidance as well.
Nonetheless, its consulting business was a bit of a
Improved bookings growth and solid performance across insurance,
banking and healthcare segments reflects strong demand for
Accenture's services, boosting long-term growth prospects.
However, increasing competition from
Cognizant Technology Solutions
), a strained spending environment and Accenture's broad European
exposure may temper its growth prospects to some extent.
Currently, Accenture has a Zacks Rank #2 (Buy). Investors may
Lexmark International Inc.
), which carries a Zacks Rank #1 (Strong Buy).