) reported second-quarter fiscal 2013 earnings per share (EPS) of
$1.00, beating the Zacks Consensus Estimate of 97 cents. Earnings
increased 3.1% from the year-ago quarter attributable to higher
revenues, non-operating income and margins and lower share count,
partially offset by foreign-exchange headwinds.
Accenture reported second-quarter net revenue of $7.06 billion
(foreign exchange impact was negligible), up 3.8% from $6.80
billion in the year-ago quarter. Net revenue was within the
company's guided range of $6.90 billion to $7.15 billion but was
in line with the Zacks Consensus Estimate. Revenue growth was
driven by strength in three operating groups in Outsourcing and
geographically in the Americas. However, this was partially
offset by a soft Consulting business and Euro issues.
Among the operating segments, Health & Public Services and
Financial Services generated double-digit revenue growth (13.0%
and 10.0%, respectively), which was supported by mid single-digit
growth (6.0%) in Product revenues. This was offset by decline in
Communications, Media & Technology (-5.0%) and Resources
Consulting revenues dropped 1.0% year over year to $3.75 billion.
Consulting revenues dropped as a result of the breakup of
projects into smaller phases by corporate customers. However,
Outsourcing revenues increased 9.0% from the year-ago quarter to
Geographically, year-over-year increases of 8.0% and 1.0% were
seen in top-line contributions from the Americas and the Asia
Pacific, respectively. Accenture's performance in the Europe, the
Middle East and Africa (EMEA) region amid the prevailing debt
concern remained flat compared to the year-ago quarter.
Total new bookings for the second quarter were $9.1 billion,
reflecting no foreign-currency impact. Consulting bookings were
$4.4 billion and outsourcing bookings were $4.7 billion.
Second-quarter gross margin increased 50 basis points (bps) year
over year to 31.6%. Gross margin expansion was supported by
improved contract profitability (mainly in Outsourcing), higher
utilization rate and lower attrition rate.
Total operating expenses increased 5.1% year over year due to an
increase of 8.0% in sales and marketing expenses and 0.3% in
general and administrative expenses. Operating margin was 16.5%,
up 340 bps year over year, mainly due to a one-time gain.
Accenture reported net income of $1.18 billion or $1.65 a share,
up from $704.5 million or 97 cents in the year-ago quarter.
Excluding the reorganization benefit and final determinations of
prior-year tax liabilities of 65 cents, adjusted earnings per
share were $1.00.
Balance Sheet & Cash Flow
Operating cash flow was $634.2 million in the reported quarter
compared to operating cash usage of $108.8 million in the prior
quarter. Net property and equipment additions were $90.2 million,
up from $86.5 million in the prior quarter. Total cash balance
decreased to $5.64 billion from $5.68 billion in the preceding
quarter. Accenture carries no significant long-term debt burden.
Share Repurchase and Dividend
During the second quarter, Accenture repurchased 8.8 million of
its common outstanding shares for a total value of $609.0
million. The activity includes 5.5 million shares repurchased in
the open market. As of Feb 28, 2013, Accenture had roughly 693
million shares worth $3.6 billion outstanding under the current
Accenture also paid a semi-annual cash dividend of 81 cents per
share in the reported quarter.
For the third quarter of fiscal 2013, Accenture expects net
revenue in the range of $7.25 billion to $7.50 billion,
reflecting decent sequential growth at the mid-point. This figure
was arrived at after considering a 2.5% negative foreign-exchange
impact. The company did not provide any third quarter update on
EPS, but the Zacks Consensus Estimate is pegged at $1.16.
For full fiscal 2013, management expects net revenue growth on
the lower side of the previously expected range of 5.0% to 8.0%
due to softness in 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 benefits related to final
determinations of prior-year tax liabilities and the reduction in
reorganization liabilities) in the range of 14.1% to 14.2% and
annual tax rate between 26.0% and 27.0%. Earnings per share
(excluding benefits related to final determinations of prior-year
tax liabilities and the reduction in reorganization liabilities)
expectation is between $4.24 and $4.32. However, the Zacks
Consensus Estimate of $4.28 is slightly lower than the midpoint
of the company's expected range.
We find Accenture's secondquarter results a mixed bag with the
bottom line beating the Zacks Consensus Estimate and the top 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 its efforts to boost its brand value could
act as a catalyst for the stock.
Also, improved bookings growth and solid performances in
insurance, banking and healthcare areas reflects strong demand
for Accenture's services, boosting long-term growth prospects.
But obviously, the Consulting business would need special
attention as its performance can put a lid over the overall
Apart from this, increasing competition from Cognizant Technology
Solutions Corp and
International Business Machines Corp.
), 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 #4 (Sell) primarily due to
downward estimate revisions by analysts. But not all similar
stocks are performing as badly as Accenture. Investors should
CRA International Inc.
Information Services Group Inc.
), which have a Zacks Rank #1 (Strong Buy) and are worth
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