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Accenture (ACN) Up 1.9% Since Last Earnings Report: Can It Continue?
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It has been about a month since the last earnings report for Accenture (ACN - Free Report) . Shares have added about 1.9% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Accenture due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Accenture Beats Q3 Earnings & Revenues Estimates
Accenture reported solid third-quarter fiscal 2020 results, wherein earnings and revenues surpassed the Zacks Consensus Estimate.
Earnings of $1.90 per share surpassed the consensus estimate by 3.3% but came below the year-ago figure by 1.6%. The decline was due to lower revenues and operating results, higher non-operating expenses, which were partially offset by lower share count.
Net revenues of $10.99 billion outpaced the consensus mark by 0.7% but decreased 1% year over year on a reported basis and 1.3% in terms of local currency. Net revenues came in toward the higher end of the guided range of $10.75-$11.15 billion.
Revenues in Detail
On the basis of the type of work, Consulting revenues of $6 billion decreased 4% year over year on a reported basis and 2% in terms of local currency. Outsourcing revenues of $5 billion increased 3% year over year on a reported basis and 5% in terms of local currency.
Segment-wise, Communications, Media & Technology revenues of $2.20 billion decreased 2% year over year on a reported basis and were flat in terms of local currency. Financial Services revenues of $2.14 billion decreased 3% year over year on a reported basis and were flat in terms of local currency. Health & Public Service revenues of $2.02 billion increased 11% year over year on a reported basis and 12% in terms of local currency. Products revenues of $3 billion decreased 3% year over year on a reported basis and 1% in local currency. Resources revenues of $1.64 billion decreased 6% year over year on a reported basis and 3% in terms of local currency.
Geographically, revenues of $5.24 billion from North Americas increased 2% year over year on a reported basis as well as in terms of local currency. Revenues from Europe of $3.57 billion decreased 5% on a reported basis and 2% in terms of local currency. Revenues from Growth Markets of $2.18 billion was flat year over year on a reported basis and increased 5% in terms of local currency.
Booking Trends
Accenture reported new bookings worth $11 billion. Consulting bookings and Outsourcing bookings totaled 6.2 billion and $4.8 billion, respectively.
Operating Results
Gross margin (gross profit as a percentage of net revenues) for the third quarter of fiscal 2020 increased 30 basis points (bps) to 32.1%. Operating income was $1.71 billion, down 0.6% year over year. Operating margin in the reported quarter expanded 10 bps to 15.6%.
Balance Sheet & Cash Flow
Accenture exited third-quarter fiscal 2020 with total cash and cash equivalents balance of $6.44 billion compared with $5.44 billion at the end of the prior quarter. Long-term debt was $60.3 million compared with $13.2 million at the end of the prior quarter.
Cash provided by operating activities crossed $2.74 billion in the reported quarter. Free cash flow came in at $2.59 billion.
Dividend Payout
Accenture has shifted its dividend payout policy from semi-annual to quarterly basis. On May 15, 2020, the company paid out a quarterly cash dividend of 80 cents per share to shareholders of record at the close of business on Apr 16, 2020. These cash dividend payouts totaled $509 million.
The company declared a quarterly cash dividend of 80 cents per share for shareholders of record at the close of business on Jul 16, 2020. This dividend will be paid out on Aug 14, 2020.
In fiscal 2019, the company paid out semi-annual cash dividends of $1.46 per share.
Share Repurchases
In line with the policy of returning cash to its shareholders, Accenture repurchased 3.7 million shares for $627 million in the fiscal third quarter. The company had approximately 637 million total shares outstanding as of May 31, 2020.
Guidance
Fourth-Quarter Fiscal 2020
For fourth-quarter fiscal 2020, Accenture expects revenues of $10.6-$11.0 billion. The assumption is inclusive of a negative foreign-exchange impact of 1%.
Fiscal 2020
Accenture updated its guidance for fiscal 2020. Management now expects EPS in the range of $7.57-$7.70 compared with the prior guided range of $7.48-$7.70. Revenues are expected to register 3.5-4.5% growth in terms of local currency compared with the prior guided growth rate of 3-6%.
Operating margin for the fiscal year is expected to be around 14.7%, indicating an expansion of 10 bps from fiscal 2019 compared with the previously expected operating margin of expansion of 10-20 bps.
The company continues to expect negative foreign exchange impact of 1.5% on its results in U.S. dollars compared with 1% negative impact expected earlier.
Operating cash flow is now anticipated in the range of $6.45-$6.95 billion compared with $6.15-$6.65 billion guided earlier. Free cash flow is now expected between $5.8 billion and $6.3 billion compared with the prior guidance of $5.5-$6.0 billion. Annual effective tax rate is now anticipated in the range of 23.5%-24.5%, compared with the prior guided range of 23.5%-25.5%.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month.
VGM Scores
Currently, Accenture has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Accenture has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Accenture (ACN) Up 1.9% Since Last Earnings Report: Can It Continue?
It has been about a month since the last earnings report for Accenture (ACN - Free Report) . Shares have added about 1.9% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Accenture due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Accenture Beats Q3 Earnings & Revenues Estimates
Accenture reported solid third-quarter fiscal 2020 results, wherein earnings and revenues surpassed the Zacks Consensus Estimate.
Earnings of $1.90 per share surpassed the consensus estimate by 3.3% but came below the year-ago figure by 1.6%. The decline was due to lower revenues and operating results, higher non-operating expenses, which were partially offset by lower share count.
Net revenues of $10.99 billion outpaced the consensus mark by 0.7% but decreased 1% year over year on a reported basis and 1.3% in terms of local currency. Net revenues came in toward the higher end of the guided range of $10.75-$11.15 billion.
Revenues in Detail
On the basis of the type of work, Consulting revenues of $6 billion decreased 4% year over year on a reported basis and 2% in terms of local currency. Outsourcing revenues of $5 billion increased 3% year over year on a reported basis and 5% in terms of local currency.
Segment-wise, Communications, Media & Technology revenues of $2.20 billion decreased 2% year over year on a reported basis and were flat in terms of local currency. Financial Services revenues of $2.14 billion decreased 3% year over year on a reported basis and were flat in terms of local currency. Health & Public Service revenues of $2.02 billion increased 11% year over year on a reported basis and 12% in terms of local currency. Products revenues of $3 billion decreased 3% year over year on a reported basis and 1% in local currency. Resources revenues of $1.64 billion decreased 6% year over year on a reported basis and 3% in terms of local currency.
Geographically, revenues of $5.24 billion from North Americas increased 2% year over year on a reported basis as well as in terms of local currency. Revenues from Europe of $3.57 billion decreased 5% on a reported basis and 2% in terms of local currency. Revenues from Growth Markets of $2.18 billion was flat year over year on a reported basis and increased 5% in terms of local currency.
Booking Trends
Accenture reported new bookings worth $11 billion. Consulting bookings and Outsourcing bookings totaled 6.2 billion and $4.8 billion, respectively.
Operating Results
Gross margin (gross profit as a percentage of net revenues) for the third quarter of fiscal 2020 increased 30 basis points (bps) to 32.1%. Operating income was $1.71 billion, down 0.6% year over year. Operating margin in the reported quarter expanded 10 bps to 15.6%.
Balance Sheet & Cash Flow
Accenture exited third-quarter fiscal 2020 with total cash and cash equivalents balance of $6.44 billion compared with $5.44 billion at the end of the prior quarter. Long-term debt was $60.3 million compared with $13.2 million at the end of the prior quarter.
Cash provided by operating activities crossed $2.74 billion in the reported quarter. Free cash flow came in at $2.59 billion.
Dividend Payout
Accenture has shifted its dividend payout policy from semi-annual to quarterly basis. On May 15, 2020, the company paid out a quarterly cash dividend of 80 cents per share to shareholders of record at the close of business on Apr 16, 2020. These cash dividend payouts totaled $509 million.
The company declared a quarterly cash dividend of 80 cents per share for shareholders of record at the close of business on Jul 16, 2020. This dividend will be paid out on Aug 14, 2020.
In fiscal 2019, the company paid out semi-annual cash dividends of $1.46 per share.
Share Repurchases
In line with the policy of returning cash to its shareholders, Accenture repurchased 3.7 million shares for $627 million in the fiscal third quarter. The company had approximately 637 million total shares outstanding as of May 31, 2020.
Guidance
Fourth-Quarter Fiscal 2020
For fourth-quarter fiscal 2020, Accenture expects revenues of $10.6-$11.0 billion. The assumption is inclusive of a negative foreign-exchange impact of 1%.
Fiscal 2020
Accenture updated its guidance for fiscal 2020. Management now expects EPS in the range of $7.57-$7.70 compared with the prior guided range of $7.48-$7.70. Revenues are expected to register 3.5-4.5% growth in terms of local currency compared with the prior guided growth rate of 3-6%.
Operating margin for the fiscal year is expected to be around 14.7%, indicating an expansion of 10 bps from fiscal 2019 compared with the previously expected operating margin of expansion of 10-20 bps.
The company continues to expect negative foreign exchange impact of 1.5% on its results in U.S. dollars compared with 1% negative impact expected earlier.
Operating cash flow is now anticipated in the range of $6.45-$6.95 billion compared with $6.15-$6.65 billion guided earlier. Free cash flow is now expected between $5.8 billion and $6.3 billion compared with the prior guidance of $5.5-$6.0 billion. Annual effective tax rate is now anticipated in the range of 23.5%-24.5%, compared with the prior guided range of 23.5%-25.5%.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month.
VGM Scores
Currently, Accenture has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Accenture has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.