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Accenture (ACN) Up 1.5% Since Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Accenture PLC (ACN - Free Report) . Shares have added about 1.5% in that time frame.

Will the recent positive trend continue leading up to its next earnings release, or is ACN 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 Earnings and Revenues Beat Estimates in Q2

Accenture delivered better-than-expected second-quarter fiscal 2018 results. The company posted non-GAAP earnings (excluding the effect of US tax law changes) of $1.58 per share, which outpaced the Zacks Consensus Estimate of $1.50. Moreover, earnings increased from $1.33 per share reported in the year-ago quarter, mainly driven by the increase in revenue generation.

Revenues and Bookings

Accenture’s fiscal second-quarter net revenues increased 15% year over year to $9.6 billion and surpassed the Zacks Consensus Estimate of $9.3 billion. In local currency terms, revenues grew 10% year over year. Net revenues also surpassed management’s guided range of $9.15 billion and $9.40 billion (mid-point $9.275 billion).

The year-over-year increase can primarily be attributed to a 17% increase in Consulting revenues ($5.16 billion). Outsourcing revenues were up 13% on a year-over-year basis ($4.43 billion). In local currency, both Consulting revenues and Outsourcing revenues were up 11% and 8%, respectively.

Among the operating segments, Communications, Media & Technology revenues went up 19% on a year-over-year basis to $1.93 billion. Revenues from Health & Public Services and Financial Services climbed 9% and 14% year over year to $1.64 billion and $2.02 billion, respectively. Revenues from Products and Resources increased 16% and 17% year over year to $2.63 billion and $1.34 billion, respectively.

Geographically, revenues from North Americas and Europe advanced 8% and 23%, respectively. Revenues from Growth Markets (Asia Pacific, Latin America, Africa, the Middle East, Russia and Turkey) increased 20% on a year-over-year basis.

Accenture reported new bookings worth $10.3 billion. Consulting bookings and Outsourcing bookings for the reported quarter totaled $5.7 billion and $4.6 billion, respectively.

Operating Results

The fiscal second-quarter gross margin decreased 40 basis point (bps) year over year at 29.7%. Accenture’s operating income was $1.28 billion or 13.4% of net revenues compared with $1.14 billion or 13.7% of revenues reported in the year-ago quarter. The company reported $920 million of net income compared with $887 million in the year-earlier quarter. If the effect of the new US tax laws is excluded, the net income was $1.06 billion.

Balance Sheet & Cash Flow

Accenture exited the fiscal second quarter with a total cash and cash equivalents of $3.59 billion compared with $3.68 billion in the preceding quarter. The company’s long-term debt balance at the end of the quarter was $22.2 million.

Operating cash flow for the quarter was $924 million, while free cash flow was $791 million.

Share Repurchase and Dividend

In line with its policy of returning cash to shareholders, Accenture repurchased 5.2 million shares for $804 million during the fiscal second quarter. The company’s total remaining share repurchase authority as on Feb 28, 2018, was around $2.1 billion.

Guidance

For third-quarter fiscal 2018, Accenture expects net revenues between $9.90 billion and $10.15 billion. The company did not provide any earnings per share guidance.

Accenture raised the range of the percentage increase in revenues for fiscal 2018. The company now estimates net revenues to grow in the range of 7-9% in local currency compared with the previous predicted range of 6-8%.

Earnings per share on GAAP basis for fiscal 2018 are now projected in the range of $6.40-$6.48, including the effect of the tax laws. Excluding the impact of the tax laws, the earnings are expected to be between $6.61 and $6.70, as compared with the previous guidance of $6.48 to $6.66.

For fiscal 2018, the company expects operating margin to be 14.8%, flat on a year-over year basis. The effective tax rate is projected to be in the range of 24-26%, up from the previous projection of 22-24%. Accenture expects operating cash flow of $5.2-$5.5 billion, up from the previous expectation of $5.0-$5.3 billion. Free cash flow is anticipated to be in the range of $4.6-$4.9 billion as compared with the previous guidance of $4.4-$4.7 billion.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. There has been one revision lower for the current quarter.

Accenture PLC Price and Consensus

 

VGM Scores

At this time, ACN has a nice Growth Score of B, though it is lagging a bit on the momentum front with a C. Following the exact same course, the stock was also allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Based on our scores, the stock is more suitable for growth investors than those looking for value and momentum.

Outlook

Estimates have been broadly trending downward for the stock and the magnitude of this revision indicates a downward shift. Notably, ACN has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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