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Accenture plc (ACN - Analyst Report) reported third quarter 2011 earnings per share (EPS) of 93 cents, beating the Zacks Consensus Estimate of 89 cents. Earnings increased 25.0% from the year-ago quarter, attributable to higher revenues and margins, lower share count and tax rate as well as favorable foreign-exchange rates. Shares jumped 3.07% in after-hour trade.

Revenues

Accenture reported third quarter 2011 net revenue of $6.72 billion, up 20.6% from $5.57 billion reported in the year-ago quarter. Net revenue was well above the company’s guided range of $6.30 billion to $6.50 billion and the Zacks Consensus Estimate of $6.21 billion.

The results included a four percentage point positive impact from foreign currency. The meaningful growth in net revenue may be attributed to the significant increase in revenues across Accenture’s operating segments and healthy demand for its offerings across the industries served.

On a year-over-year basis, revenues increased 25.4% for Financial Services, 22.5% for Communications & High Tech and 20.4% for Product. Revenues from Resources were up 27.9%, while Health & Public Services Group revenues grew 4.8% from the year-ago quarter. Other revenues grew 11.8% year over year.

Consulting and Outsourcing revenues increased 23.0% and 17.4% from last year to $3.97 billion and $2.75 billion, respectively.

Geographically, year-over-year increases of 16.2%, 20.6% and 38.4% were seen in top-line contributions from the Americas, Europe Middle East and Africa (EMEA) and the Asia Pacific, respectively.

Bookings

Consulting bookings were $3.70 billion and outsourcing bookings were $3.40 billion. Net new bookings reflect a positive 6.0% foreign currency impact. According to management, bookings growth was attributable to growing demand for Accenture’s services.

Operating Results

The third quarter gross margin dropped 30 basis points year over year to 34.4%. The utilization rate dropped 100 basis points year over year to 86.0%. The decrease in gross margin was also attributable to higher subcontractor costs, recruiting and training costs as well as an increase in annual compensation.

Total operating expenses grew 20.9% year over year due to increases of 16.5% in sales and marketing expenses and 28.6% in general and administrative expenses. However, as a percentage of net revenue, operating expenses remained flat with the year-ago quarter. The operating margin was 14.1% compared to 14.5% in the year-ago quarter.

Accenture reported net income of $692.0 million or 93 cents a share, up from $557.5 million or 73 cents in the year-ago quarter. One-time items in the quarter were insignificant. The effective tax rate was 27.0% compared to 29.8% in third quarter of 2010.

Balance Sheet & Cash Flow

Operating cash flow was $1.35 billion in the reported quarter compared to $601.1 million in the prior quarter. Net property and equipment additions were $112.7 million, up from $78.6 million in the prior quarter. Days of services outstanding remained unchanged from the previous quarter at 32.

Total cash balance as of May 31, 2011 shot up to $5.26 billion from $9.87 billion in the preceding quarter. Lower cash balance was due to huge cash outlay in investing and financing activities. Accenture carries a total debt burden (long term plus short term) of $4.7 million.

Share Repurchase and Dividend

During the third quarter, Accenture repurchased 11.4 million of its common outstanding shares at a total value of $644.0 million. The activity includes 9.7 million shares repurchased in the open market. As of May 31, 2011 Accenture had roughly $1.7 billion shares outstanding under the current authorization.

Accenture also paid a semi-annual cash dividend of 45 cents per share in the reported quarter.

Guidance

For the fourth quarter of fiscal 2011, Accenture expects net revenue in the range of $6.4 billion to $6.6 billion. This figure was arrived at after taking into consideration an 8% positive foreign-exchange impact. The Zacks Consensus Estimate for earnings is 81 cents.

For full fiscal 2011, Accenture assumes a positive foreign-exchange impact of 3% on revenue. Net revenue growth is projected in the range of 14.0% to 15.0%, up from the previously announced range of 11.0% to 14.0%. Expectations for new bookings were maintained in the range of $25.0 billion to $28.0 billion, though management remains somewhat concerned about the contribution from Japan.

The company also reiterated its operating margin guidance at 13.6% to 13.7% but expects the annual tax rate to be between 27.0% and 28.0% (previously 28.0–29.0%). Diluted EPS expectation has been raised to $3.36–$3.40 from the previously guided range of $3.22–$3.30. The earnings guidance is above the Zacks Consensus Estimate of $3.27.

Accenture also forecasts operating cash flow in the range of $2.9–$3.1 billion (previously $2.8–$3.0 billion); property and equipment additions of roughly $400.0 million (previously $420.0 million); and free cash flow in the range of $2.5 billion to $2.7 billion (previously $2.4 billion to $2.6 billion).

Recommendation

We find Accenture’s third quarter results encouraging, as both top and bottom lines strongly beat the Zacks Consensus Estimates. Based on improving business momentum and market share gains, Accenture raised its revenue and earnings guidance for fiscal 2011. Moreover, we are encouraged by the steady flow of new business and believe that the trend will continue.

Apart from this, we remain optimistic about Accenture’s deal wins from various industry verticals. We also think Accenture’s recent acquisitions enrich its product portfolio. However, increasing competition from IBM Inc. (IBM - Analyst Report) may temper growth prospects to some extent.

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

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