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Accenture (ACN) Q2 Earnings Top Estimates, Revenues Miss

Accenture plc ACN reported mixed second-quarter fiscal 2017 results.

Earnings per share (EPS) of $1.33 beat the Zacks Consensus Estimate of $1.30. However, earnings decreased from $1.34 per share on a year-over-year basis.

Revenues and Bookings

Though Accenture's fiscal second-quarter net revenue increased 4.7% year over year to $8.318 billion, it missed the Zacks Consensus Estimate of $8.344 billion. In local currency terms, revenues increased 6% year over year. Net revenue also came within the guided range of 8.15 billion and $8.40 billion.

The year-over-year increase was primarily aided by a 3% increase in Consulting revenues ($4.41 billion). Outsourcing revenues increased 7% on a year-over-year basis ($3.91 billion). It is worth mentioning that both Consulting revenues and Outsourcing revenues increased 5% and 8% in local currency, respectively.

Among the operating segments, Communications, Media & Technology revenues were up 1% on a year-over-year basis to $1.62 billion. Revenues from Health & Public Services and Financial Services increased 2% and 5% year over year to $1.51 billion and $1.77 billion, respectively. Revenues from Products increased 14% year over year to $2.26 billion. Resources, however, decreased 2% year over year to $1.14 billion.

Geographically, revenues from North Americas and Europe increased 4% and 2% year over year, respectively. Revenues from Growth Markets (Asia Pacific, Latin America, Africa, the Middle East, Russia and Turkey) increased 12% on a year-over-year basis.

Accenture reported $9.2 billion worth new bookings, which were negatively impacted by foreign currency fluctuation. Consulting bookings and Outsourcing bookings for the quarter totaled $4.6 billion and $4.6 billion, respectively.

Operating Results

Fiscal second-quarter gross margin increased 30 basis points (bps) on a year-over-year basis to 30.1%, primarily due to a higher revenue base.

Combined sales and marketing expenses, and general and administrative costs increased 6.5% from the year-ago quarter to $1.36 billion. Also, as a percentage of net revenue, these expenses increased 30 bps year over year to 16.4%.

Accenture's operating income was $1.14 billion or 13.7% of net revenue compared with $1.09 billion or 13.7% of revenue reported in the year-ago quarter. Accenture reported $876.7 billion in net income or $1.33 per share compared with $1.39 billion or $2.08 per share reported in the year-ago quarter.

Balance Sheet & Cash Flow

Accenture exited the fiscal second quarter with a total cash balance of $3.24 billion compared with $4.08 billion in the preceding quarter. Accenture's long-term debt balance at the end of the quarter was $24.5 million.

Operating cash flow was $154.7 billion while free cash flow was $50 million.

Share Repurchase and Dividend

In line with its policy of returning cash to shareholders, Accenture repurchased 7 million shares for $816 million during the fiscal second quarter. The company also declared a semi-annual cash dividend of $1.21 per share during the quarter.

Guidance

For the third quarter of fiscal 2017, Accenture expects net revenue between $8.65 billion and $8.90 billion (mid-point $8.775 billion). The Zacks Consensus Estimate is pegged at $8.791 billion. The company did not provide any earnings per share guidance.

Accenture raised its earnings guidance for fiscal 2017. The company now expects net revenue to grow in the range of 6% to 8% in local currency (previously 5% to 8%). Earnings per share are expected in the range of $5.70-$5.87 (previous guidance $5.64-$5.87). The Zacks Consensus Estimate is pegged at $5.85 per share.

For fiscal 2017, the company continues to expect operating margin in the range of 14.7% to 14.9%. The effective tax rate projection has also been reiterated at 22% to 24%. Accenture continues to expect operating cash flow of $4.6 billion to $4.9 billion and free cash flow of $4 billion to $4.3 billion.

Our Take

Accenture delivered mixed second-quarter fiscal 2017 results, wherein the bottom line surpassed the Zacks Consensus Estimate but the top line missed the same. Though the company raised its fiscal 2017 earnings and revenue guidance, it has a tepid revenue projection for the current quarter. However, revenues increased on a year-over-year basis, reflecting deeper focus on the Consulting and Outsourcing business, new bookings and continued return of shareholder value.

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

Notably, shares of Accenture have been steadily trending up on a year-to-date basis. The stock has returned 7.98%, outperforming the Zacks Consulting industry's gain of 5.55%.

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

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 growth to some extent.

Shares of Accenture were down more than 2% in pre-market trading .

Accenture has a Zacks Rank #3 (Hold). Investors may consider Seagate Technology PLC STX , which sports a Zacks Rank #1 (Strong Buy).You can see the complete list of today's Zacks #1 Rank stocks here .

Seagate has a long term-expected EPS growth rate of 8.17%.

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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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