Accenture Beats, Raises Outlook - Analyst Blog

Accenture plc (ACN) reported first quarter 2011 earnings per share (EPS) of 81 cents, handsomely beating the Zacks Consensus Estimate of 75 cents. The quarter's earnings increased 20.9% from the year-ago quarter, attributable to higher revenues and margins, as well as a lower share count and tax rate, partially offset by unfavorable foreign-exchange rates.

Revenues

Accenture reported first quarter 2011 net revenue of $6.05 billion, up 12.3% from $5.38 billion reported in the year-ago quarter and above the Zacks Consensus Estimate of $5.71 billion. Net revenue was also above the company's guided range of $5.6 billion to $5.8 billion and included a three percentage point negative impact from foreign currency. The meaningful growth in net revenue may be attributed to the significant increase in revenues across the majority of Accenture's operating segments.

Financial Services revenues shot up 17.9% on a year-over-year basis. Communications & High Tech revenues grew 10.8%, while Product revenues increased 15.9% year over year. Revenues from Resources were up 17.0% from the year-ago quarter. The improvement in these segments was partially offset by decreases of 1.6% in Health & Public Services Group revenues and 7.9% in Other revenues.

Consulting revenues surged 14.3% from the year-ago quarter to $3.57 billion, while Outsourcing revenue grew 9.5% from the year-earlier quarter to $2.48 billion.

Geographically, year-over-year increases of 18.1%, 3.4% and 28.4% were seen in revenues from the Americas, Europe Middle East and Africa (EMEA) and the Asia Pacific region, respectively.

Bookings

Consulting bookings were $3.72 billion and outsourcing bookings were $2.59 billion. On the whole, new bookings in the first quarter were $6.31 billion, which reflects a negative 1.0% foreign currency impact as against new bookings in the comparable period last year.

Operating Results

The first quarter gross profit as a percentage of net revenue was 32.2%, compared to 33.1% in the comparable quarter last year. The utilization rate dropped 100 basis points year over year to 87.0%. The decrease in gross margin was attributed to higher subcontractor costs, recruiting and training costs, as well as growth in annual compensation.

Operating profit as a percentage of net revenue was 13.7%, compared to 13.9% in the year-ago quarter. The decrease in the operating margin was mainly due to a 13.0% year-over-year increase in total operating expenses led by a 17.6% year-over-year growth in sales and marketing expenses.

Accenture reported net income of $599.4 million or 81 cents a share, up from $518.8 million or 67 cents in the year-ago quarter. The effective tax rate was 28.3% compared with 30.5% in the year-ago quarter.

Balance Sheet & Cash Flow

Operating cash flow in the quarter was $106.4 million, compared to $219.1 million in the year-ago quarter. Net property and equipment additions were $75.5 million, up from $34.8 million in the year-earlier quarter. Days of services outstanding were 33, up from 32 in the year-ago quarter. Total cash balance as of November 30, 2010, was $4.16 billion versus $4.84 billion as of August 31, 2010.

Share Repurchase and Dividend

During the quarter, Accenture repurchased 14.6 million of its common outstanding shares at a total value of $620.0 million. The activity includes 3.2 million shares repurchased in the open market. As of November 30, 2010, Accenture had roughly $2.5 billion shares outstanding under the current authorization.

Accenture declared a semi-annual cash dividend of 45 cents per share in the reported quarter. Total dividend paid to Class A ordinary shareholders and SCA Class I common shareholders amounted to $321.0 million.

Guidance

For the second quarter of fiscal 2011, Accenture expects net revenue in the range of $5.6 billion to $5.8 billion. This figure was arrived at after taking into consideration a 2% negative foreign-exchange impact.

For fiscal 2011, the company expects net revenue growth in the range of 8.0% to 11.0% (previously 7.0% to 10.0%). New bookings are expected to range between $25.0 billion and $28.0 billion. The company also expects operating margin of between 13.6% and 13.7%, annual tax rate of 28.0% to 29.0% and diluted EPS of $3.08–$3.16 (previously $3.00–$3.08).

Accenture also forecast operating cash flow in the range of $2.7–$2.9 billion; property and equipment additions of roughly $340 million; and free cash flow in the range of $2.4 billion to $2.6 billion.

Recommendation

We believe that first quarter results are encouraging as both the top and bottom line strongly beat the Zacks Consensus Estimates. Based on improving business momentum and increasing technology spending, Accenture raised its revenue and earnings guidance for fiscal 2011. Moreover, we are encouraged by the steady flow of new business, which is the result of increasing tech spending in 2010.

We remain encouraged with Accenture's deal wins from various industry verticals. We also appreciate successive acquisitions by Accenture as they enrich the company's product portfolio. Recently, global hospitality company Hilton Worldwide signed a multi-year technology services contract with Accenture. Under the terms of the contract, Accenture will have the opportunity to work with tech giants such as International Business Machines Inc. (IBM) and Microsoft Corp. (MSFT).on a common platform, which will strengthen the company's industry exposure.

Currently, Accenture has a short-term Buy recommendation, implying a Zacks #2 Rank.

 
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