Accenture plc
(
ACN
) reported third quarter fiscal 2012 earnings per share (EPS) of
$1.03, handily beating the Zacks Consensus Estimate of 99 cents.
Earnings increased 11.3% from the year-ago quarter aided by higher
revenues and margins, lower share count, partially offset by a
higher tax rate as well as foreign-exchange headwinds. Shares
gained 2.95% in after-hour trade.
Revenues
Accenture reported third quarter net revenue of $7.2 billion
(including a 3.0% negative foreign exchange impact), up 6.5% from
$6.7 billion in the year-ago quarter. Net revenue was roughly in
line with the higher end of the company's guided range of $7.05
billion to $7.25 billion and the Zacks Consensus Estimate. The
meaningful growth in net revenue was mostly driven by a favorable
business mix, wide acceptance of its products and services and
solid growth in Outsourcing revenues.
Among the operating segments,
Health & Public Services
generated double-digit year-over-year growth, while
Communications, Media & Technology
,
Financial Services
and
Resources
generated single-digit year-over-year growth, with
Product
securing a high single-digit growth rate.
Other revenues
growth was negligible.
Consulting
revenue remained unchanged at $3.97 billion. However,
Outsourcing
revenues increased 16.0% from the year-ago quarter to $3.19
billion.
Geographically, year-over-year increases of 10.0% and 18.0% were
seen in top-line contributions from the
Americas
and
Asia Pacific
, respectively. Accenture's performance in the
EMEA
region amidst the prevailing debt concern lacked luster, with a
fall of 1.0% year over year.
Bookings
Total new bookings for the third quarter were $7.29 billion,
reflecting a negative 4% foreign-currency impact. Consulting
bookings were $4.05 billion and outsourcing bookings were $3.25
billion.
Operating Results
The third quarter gross margin dropped 130 basis points year
over year to 33.1%. The utilization rate was 87.0%, up from 85.0%
in the prior-year quarter. The decrease in gross margin was due to
higher subcontractor costs, recruiting and training costs as well
as an increase in annual compensation. The attrition rate fell to
13.0% from 15.0% in the year-ago quarter.
Total operating expenses fell 3.7% year over year due to a
decrease of 13.7% in general and administrative expenses and modest
growth of 2.7% in sales and marketing expenses. The operating
margin was 14.8% compared to 14.1% in the year-ago quarter.
Accenture reported net income of $752.4 million or $1.03 a
share, up from $692.0 million or 93 cents in the year-ago quarter.
One-time items in the quarter were insignificant. The effective tax
rate was 28.5% 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 $1.22 billion in the reported quarter
compared to $857.8 million in the prior quarter. Net property and
equipment additions were $90.5 million, up from $85.4 million in
the prior quarter. Total cash balance increased to $5.6 billion
from $5.5 billion in the preceding quarter. Accenture carries a
total debt burden (long term plus short term) of $5.4 million, down
from $5.9 million in the prior quarter.
Share Repurchase and Dividend
During the third quarter, Accenture repurchased 10.7 million of
its common outstanding shares for a total value of $653.0 million.
The activity includes 9.8 million shares repurchased in the open
market. As of May 31, 2012, Accenture had roughly 697 million
shares worth $4.8 billion outstanding under the current
authorization.
Accenture also paid a semi-annual cash dividend of 67.5 cents
per share in the reported quarter.
Guidance
For the fourth quarter of fiscal 2012, Accenture expects net
revenue in the range of $6.60 billion to $6.85 billion, reflecting
a bleak sequential comparison. This figure was arrived at after
considering a 7% negative foreign-exchange impact. The company did
not provide any fourth quarter update on EPS, but the Zacks
Consensus Estimate is pegged at 95 cents.
For full fiscal 2012, management updated its previous
expectations. But net revenue growth is still projected in the
range of 10.0% to 12.0%. Expectation for new bookings is skewed
toward the higher end of the previously guided range of $28.0
billion to $31.0 billion.
The company continues to expect operating margin in the range of
13.7% to 13.9% and the annual tax rate between 27.0% and 28.0%.
Diluted EPS expectation is between $3.80 and $3.84, lower than the
prior expected range of $3.82-$3.90. However, the Zacks Consensus
Estimate of $3.86 is higher than the company's guidance range,
reflecting a possible upside.
Accenture also forecasts operating cash flow in the range of
$3.55-$3.85 billion; property and equipment additions of roughly
$350.0 million; and free cash flow in the range of $3.2 billion to
$3.5 billion.
Accenture's fiscal year outlook assumes a foreign-exchange
impact of negative 2.0%, which is worse than negative 1.0% guided
previously.
Recommendation
We find Accenture's third quarter results decent, as the top and
bottom lines beat the Zacks Consensus Estimates. The operating cost
optimization was encouraging too. But the sequential and fiscal
projections were disappointing due to the Euro zone debt-issues and
currency headwinds.
Despite a weak sequential revenue outlook, Accenture maintained
its fiscal expectations, which indicate stable bookings growth. But
management's commentary at the conference call to continue
investing in priority industries (such as Communications), emerging
markets, geographical expansion as well as boosting its brand value
could act as catalysts for the stock.
Accenture's deal prospects look bright. Moreover, the company's
endeavor to expand in Asia is encouraging. With the continuous
emergence of hi-tech innovations in Asia, Accenture could ink deals
in technology services, as well as outsourcing and consulting
services.
We are encouraged by the steady flow of new business and believe
that the trend will continue. However, increasing competition from
IBM 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 recommendation,
denoted by the Zacks #3 Rank.
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