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Accenture plc (ACN - Analyst Report) reported third quarter fiscal 2013 earnings per share (EPS) of $1.14, marginally beating the Zacks Consensus Estimate of $1.13. Earnings increased 10.7% from the year-ago quarter attributable to higher margins, non-operating income, lower share count and tax rate, partially offset by lackluster revenue growth and foreign-exchange headwinds.

Shares plunged 6.82% in after-hours trading reflecting the guidance cut and decreasing Consulting revenues.

Revenues

Accenture reported third quarter net revenue of $7.2 billion (foreign exchange impact was negative 2.5%), roughly flat with $7.15 billion reported in the year-ago quarter. Net revenue came below the company guided range of $7.25 billion to $7.50 billion and the Zacks Consensus Estimate of $7.47 billion. Modest growth in three operating segments, the Outsourcing business and strength in the Americas was offset by a soft Consulting business and Euro issues.

Among the operating segments, Health & Public Services, Financial Services and Products generated single-digit revenue growth (5.0%, 9.0% and 1.0%, respectively). This was offset by a decline in Communications, Media & Technology (5.0%) and Resources (5.0%) revenues.

Consulting revenues dropped 2.0% year over year to $3.9 billion. Consulting revenues dropped as a result of the breakup of projects into smaller phases by corporate customers. However, Outsourcing revenues increased 4.0% from the year-ago quarter to $3.3 billion.

Geographically, revenues from Americas increased 7.0% year over year, while revenues from Europe, the Middle East and Africa (EMEA) and Asia Pacific regions declined 4.0% and 5.0%, respectively.

Bookings

Total new bookings for the third quarter amounted to $8.3 billion, reflecting negative foreign-currency impact of 3.0%. Consulting bookings were $3.9 billion and outsourcing bookings were $4.4 billion.

Operating Results

Third quarter gross margin increased 80 basis points (bps) year over year to 33.9%. Gross margin expansion was supported by improved contract profitability (mainly in Outsourcing), higher utilization rate and lower attrition rate.

Total operating expenses decreased 1.1% year over year mainly due to reorganization cost benefit, which was offset by 3.8% rise in sales and marketing expenses and 0.7% increase in general and administrative expenses. Operating margin was 15.9%, up 110 bps year over year on expense control.

Accenture reported net income of $863.4 million or $1.21 a share, up from $752.4 million or $1.03 in the year-ago quarter. Excluding reorganization benefit of 7 cents, adjusted earnings per share were $1.14.

Balance Sheet & Cash Flow

Operating cash flow was $1.5 billion in the reported quarter compared with $634.2 million in the prior quarter. Net property and equipment additions were $90.6 million versus $90.2 million in the prior quarter. Total cash balance increased to $5.94 billion from $5.63 billion in the preceding quarter. Accenture carries no long-term debt.

Share Repurchase and Dividend

During the third quarter, Accenture repurchased 7.8 million of its common outstanding shares for a total value of $618.0 million. The activity includes 7.1 million shares repurchased in the open market. As of May 31, 2013, Accenture had roughly 688 million shares worth $3.0 billion outstanding under the current authorization.

Accenture also paid a semi-annual cash dividend of 81 cents per share in the reported quarter, which amounted to $561.6 million.

Guidance

For the fourth quarter of fiscal 2013, Accenture expects net revenue in the range of $6.70 billion to $7.00 billion, reflecting sequential decline at the mid-point. This figure was arrived at after considering a 1.0% negative foreign-exchange impact. The company did not provide any fourth quarter update on EPS but the Zacks Consensus Estimate is pegged at $1.08.

For full fiscal 2013, management expects net revenue growth in the range of 3.0% to 4.0% (previously lower end of 5.0%-8.0% range) due to softness in the Consulting business arising from lower corporate spending. Expectation for new bookings remains in the range of $31.0 billion to $34.0 billion. The company continues to expect operating margin (excluding reorganization benefits) in the range of 14.2% to 14.3% (previously 14.1% to 14.2%) and annual tax rate between 25.5% and 26.5% (previously 26.0% and 27.0%).

GAAP earnings per share are expected in the range of $4.90 to $4.94 (previously $4.89 to $4.97). Adjusted earnings per share (excluding benefits related to final determinations of prior-year tax liabilities and the reduction in reorganization liabilities) are expected in the range of $4.18 and $4.22 (previously $4.24-$4.32). However, the Zacks Consensus Estimate of $4.28 is higher than the company expected range.

Recommendation

We find Accenture’s third quarter results a mixed bag with the bottom line beating the Zacks Consensus Estimate and the top line missing it. Increasing focus on the outsourcing business, operating cost optimization, new bookings and continuous return of shareholder value were the quarter’s positives. But continuous weakness in consulting business could be a reason for concern, going forward.

Also, improved bookings growth and solid performances in insurance, banking and healthcare reflects strong demand for Accenture’s services, boosting long-term growth prospects.

Apart from this, increasing competition from Cognizant Technology Solutions Corp and IBM Corp. (IBM - Analyst Report), a strained spending environment and Accenture’s broad European exposure (roughly 40.0%) may temper its growth prospects to some extent.

Currently, Accenture has a Zacks Rank #3 (Hold). Investors should also consider Huron Consulting Group Inc. (HURN - Snapshot Report) and Towers Watson (TW - Snapshot Report), which have a Zacks Rank #2 (Buy) and are worth buying.

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