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Fighting Heavy Currency Headwinds, Accenture Stumbled in the First Quarter

Image source: Accenture.

IT and professional services outsourcing hub Accenture reported first-quarter results on Thursday morning. The report fell short of market expectations, and Accenture shares fell nearly 5% on the news. Here's a closer look at the quarterly update:

Accenture's Q1 results: The raw numbers

Q1 2016 Actuals Q1 2015 Actuals Growth (YOY)
Net Revenues $8.0 billion $7.9 billion 1.5%
Net Income Attributable to Accenture $819 million $832 million -2.3%
GAAP Earnings Per Diluted Share $1.28 $1.29 -0.8%

Data source: Accenture.

What happened with Accenture this quarter?

As a sprawling global services provider, Accenture is exposed to currency exchange trends in a big way. Backing out the effects of the rising dollar and looking at just local currency figures, sales increased 10% year over year on that adjusted basis.

  • Sales increased in each of Accenture's five reportable segments, when adjusted for currency exchange effects. Otherwise, four of the divisions saw rising dollar sales while resource management revenues declined by 4% year over year.
  • In local currencies, North American sales rose 11% and European revenues increased by 12%. Both of these large geographical segments outpaced Accenture's so-called growth markets, which took a relative breather with just 6% higher adjusted sales.
  • Adjusted consulting revenues rose by 15%, while outsourcing work only saw a 5% adjusted sales increase. Consulting services now account for 54% of Accenture's quarterly sales, up from 52% in the year-ago period.

Currency effects will continue to matter in the next quarter and coming year, and Accenture's leadership team continues to adjust their forward outlook according to these macro trends.

  • For the second quarter, Accenture expects net revenues of approximately $7.6 billion, give or take 2%. This compares to net revenues of $7.5 billion in the year-ago period, and the estimate assumes annual currency headwinds of roughly 6%.
  • Management also raised its full-year local currency sales outlook by 1% while also assuming currency effects to hurt 1% more than previously assumed. These adjustments should largely cancel each other out, and Accenture's full-year profit and cash flow guidance was left unchanged.

What management had to say

Accenture CEO Pierre Nanterme highlighted the currency headwinds, using that effect as a backdrop to generally healthy operational trends:

"We delivered 10 percent revenue growth in local currency, which was again broad-based across the dimensions of our business including double-digit growth in three of our five operating groups and in North America and Europe -- our two largest geographic regions," Nanterme said in a press statement.

Looking ahead

The company is in the midst of a strategic makeover, with a focus on cloud, security, and digital services above all else. These are high-growth markets for the long run, but every radical strategy shift comes with growing pains.

However, Accenture's pain may be less tortuous than most. Over the last five years, trailing free cash flows have increased by 42% on 33% higher sales, helping share prices double over the same time span. Frequent head-to-head rival IBM is going through a similar strategy shift, but Big Blue's sales and cash flows have actually decreased over the last five years, and IBM shares have been going nowhere.

Here's a quick visual overview of these IT consulting makeovers:

ACN data by YCharts .

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The article Fighting Heavy Currency Headwinds, Accenture Stumbled in the First Quarter originally appeared on Fool.com.

Anders Bylund owns shares of IBM. The Motley Fool recommends Accenture. Try any of our Foolish newsletter services free for 30 days .We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .

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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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