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Accenture (ACN) Q1 Earnings Miss Estimates, Revenues Top

Accenture plcACN reported first-quarter fiscal 2016 earnings per share of $1.28, which missed the Zacks Consensus Estimate of $1.31 per share. Also, on a year-over-year basis, earnings decreased 1% from $1.29 per share. The year-over-year decrease was primarily due to the negative impact of a higher tax rate.

Revenues and Bookings

Accenture's first-quarter net revenue not only increased 1.5% year over year to $8.013 billion but also surpassed the Zacks Consensus Estimate of $7.896 billion. Net revenue also came ahead of management's guided range of $7.70 billion and $7.95 billion, primarily aided by a 6% increase in Consulting revenues ($4.35 billion), which more than offset a 4% decline in Outsourcing revenues ($3.67 billion).

Among the operating segments, Communications, Media & Technology revenues were up 1% on a year-over-year basis to $1.60 billion. Revenues from Health & Public Services and Financial Services increased 4% and 2% year over year to $1.42 billion and $1.75 billion, respectively. Revenues from Products also increased 3% on a year-over-year basis and came in at $1.99 billion. Resources, however, decreased 4% on a year-over-year basis to $1.25 billion during the quarter.

Geographically, revenues from the North Americas increased 9% on a year-over-year basis, while revenues from Europe and Growth Markets (Asia Pacific, Latin America, Africa, the Middle East, Russia and Turkey) were down 1% and 12%, respectively, from the year-ago quarter.

Accenture reported new bookings of $7.7 billion during the quarter, which were negatively impacted by foreign currency fluctuations. Consulting bookings and Outsourcing bookings for the quarter amounted to $4.4 billion and $3.3 billion, respectively.

Operating Results

First quarter gross margin decreased 20 basis points (bps) on a year-over-year basis and came in at 32%, primarily due to higher cost of services.

Operating expenses decreased 0.8% from the year-ago quarter to $1.34 million, primarily due to lower sales and marketing expenses. As a percentage of net revenue, operating expenses were down 40 bps on a year-over-year basis and came in at 16.7%.

Accenture's operating income came in at $1.22 billion or 15.2% of net revenue compared with $1.19 billion or 15% of revenues reported in the year-ago quarter. Lower operating expenses positively impacted the operating results. Accenture reported $858.5 million in net income or $1.28 per share.

Balance Sheet & Cash Flow

Accenture exited the quarter with total cash balance of $3.08 billion compared with $4.36 billion in the preceding quarter. Accenture's long-term debt balance at the end of the first quarter was $25.8 million.

Operating cash flow was $611.3 million in the reported quarter while free cash flow was $517 million.

Share Repurchase and Dividend

In line with its policy of returning cash to shareholders, Accenture repurchased 6.5 million shares for $658 million during the first quarter. The company increased its semi-annual cash dividend by 8% to $1.10 per share during the quarter.

Guidance

For the second quarter of fiscal 2016, Accenture expects net revenue between $7.50 billion and $7.75 billion. The Zacks Consensus Estimate is pegged at $7.75 billion. The company did not provide any earnings per share guidance.

Accenture updated its guidance for fiscal 2016. The company now expects net revenue to grow in the range of 6% to 9% in local currency (previously 5% to 8%). Accenture reiterated its earnings guidance per share in the range of $5.09-$5.24 (mid-point $5.17 per share). The Zacks Consensus Estimate is pegged at $5.21 per share.

For fiscal 2016, the company's operating margin is projected in the range of 14.6% to 14.8%. Operating cash flow is expected in the range of $4.1 billion to $4.4 billion, while free cash flow is likely to be within $3.6 billion to $3.9 billion. Annual effective tax rate is expected to be in the range of 25% to 26%.

Our Take

Accenture delivered mixed first quarter fiscal 2016 results. While the bottom line missed the Zacks Consensus Estimate, the top line surpassed the same. However, revenues increased on a year-over-year basis, reflecting increased focus on the Consulting business, new bookings and continuous return of shareholders' value. However, the company provided a not-so- encouraging second quarter fiscal 2016 revenue guidance and fiscal 2016 earnings outlook.

Nonetheless, Accenture's solid performance across insurance, banking and health care segments reflects strong demand for its services, which will boost its long-term growth prospects.

However, increasing competition from Cognizant Technology Solutions CTSH and International Business Machines Corporation IBM , a strained spending environment and Accenture's broad European exposure may temper its growth to some extent.

Accenture has a Zacks Rank #3 (Hold). Investors may consider VASCO Data Security International Inc. VDSI , which sports a Zacks Rank #1 (Strong Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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