) reported third quarter fiscal 2013 earnings per share (EPS) of
$1.14, marginally beating the Zacks Consensus Estimate of $1.13.
Earnings increased 10.7% from the year-ago quarter attributable
to higher margins, non-operating income, lower share count and
tax rate, partially offset by lackluster revenue growth and
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Shares plunged 6.82% in after-hours trading reflecting the
guidance cut and decreasing Consulting revenues.
Accenture reported third quarter net revenue of $7.2 billion
(foreign exchange impact was negative 2.5%), roughly flat with
$7.15 billion reported in the year-ago quarter. Net revenue came
below the company guided range of $7.25 billion to $7.50 billion
and the Zacks Consensus Estimate of $7.47 billion. Modest growth
in three operating segments, the Outsourcing business and
strength in the Americas was offset by a soft Consulting business
and Euro issues.
Among the operating segments, Health & Public Services,
Financial Services and Products generated single-digit revenue
growth (5.0%, 9.0% and 1.0%, respectively). This was offset by a
decline in Communications, Media & Technology (5.0%) and
Resources (5.0%) revenues.
Consulting revenues dropped 2.0% year over year to $3.9 billion.
Consulting revenues dropped as a result of the breakup of
projects into smaller phases by corporate customers. However,
Outsourcing revenues increased 4.0% from the year-ago quarter to
Geographically, revenues from Americas increased 7.0% year over
year, while revenues from Europe, the Middle East and Africa
(EMEA) and Asia Pacific regions declined 4.0% and 5.0%,
Total new bookings for the third quarter amounted to $8.3
billion, reflecting negative foreign-currency impact of 3.0%.
Consulting bookings were $3.9 billion and outsourcing bookings
were $4.4 billion.
Third quarter gross margin increased 80 basis points (bps) year
over year to 33.9%. Gross margin expansion was supported by
improved contract profitability (mainly in Outsourcing), higher
utilization rate and lower attrition rate.
Total operating expenses decreased 1.1% year over year mainly due
to reorganization cost benefit, which was offset by 3.8% rise in
sales and marketing expenses and 0.7% increase in general and
administrative expenses. Operating margin was 15.9%, up 110 bps
year over year on expense control.
Accenture reported net income of $863.4 million or $1.21 a share,
up from $752.4 million or $1.03 in the year-ago quarter.
Excluding reorganization benefit of 7 cents, adjusted earnings
per share were $1.14.
Balance Sheet & Cash Flow
Operating cash flow was $1.5 billion in the reported quarter
compared with $634.2 million in the prior quarter. Net property
and equipment additions were $90.6 million versus $90.2 million
in the prior quarter. Total cash balance increased to $5.94
billion from $5.63 billion in the preceding quarter. Accenture
carries no long-term debt.
Share Repurchase and Dividend
During the third quarter, Accenture repurchased 7.8 million of
its common outstanding shares for a total value of $618.0
million. The activity includes 7.1 million shares repurchased in
the open market. As of May 31, 2013, Accenture had roughly 688
million shares worth $3.0 billion outstanding under the current
Accenture also paid a semi-annual cash dividend of 81 cents per
share in the reported quarter, which amounted to $561.6 million.
For the fourth quarter of fiscal 2013, Accenture expects net
revenue in the range of $6.70 billion to $7.00 billion,
reflecting sequential decline at the mid-point. This figure was
arrived at after considering a 1.0% negative foreign-exchange
impact. The company did not provide any fourth quarter update on
EPS but the Zacks Consensus Estimate is pegged at $1.08.
For full fiscal 2013, management expects net revenue growth in
the range of 3.0% to 4.0% (previously lower end of 5.0%-8.0%
range) due to softness in the Consulting business arising from
lower corporate spending. Expectation for new bookings remains in
the range of $31.0 billion to $34.0 billion. The company
continues to expect operating margin (excluding reorganization
benefits) in the range of 14.2% to 14.3% (previously 14.1% to
14.2%) and annual tax rate between 25.5% and 26.5% (previously
26.0% and 27.0%).
GAAP earnings per share are expected in the range of $4.90 to
$4.94 (previously $4.89 to $4.97). Adjusted earnings per share
(excluding benefits related to final determinations of prior-year
tax liabilities and the reduction in reorganization liabilities)
are expected in the range of $4.18 and $4.22 (previously
$4.24-$4.32). However, the Zacks Consensus Estimate of $4.28 is
higher than the company expected range.
We find Accenture's third quarter results a mixed bag with the
bottom line beating the Zacks Consensus Estimate and the top line
missing it. Increasing focus on the outsourcing business,
operating cost optimization, new bookings and continuous return
of shareholder value were the quarter's positives. But continuous
weakness in consulting business could be a reason for concern,
Also, improved bookings growth and solid performances in
insurance, banking and healthcare reflects strong demand for
Accenture's services, boosting long-term growth prospects.
Apart from this, increasing competition from Cognizant Technology
Solutions Corp and
), a strained spending environment and Accenture's broad European
exposure (roughly 40.0%) may temper its growth prospects to some
Currently, Accenture has a Zacks Rank #3 (Hold). Investors should
Huron Consulting Group Inc.
), which have a Zacks Rank #2 (Buy) and are worth buying.