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Accenture Beats, Guides Favorably

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Accenture plc (ACN - Analyst Report) reported fourth quarter fiscal 2011 earnings per share (EPS) of 91 cents, beating the Zacks Consensus Estimate of 89 cents. Earnings increased 37.1% from the year-ago quarter aided by higher revenues and margins, lower share count and tax rate as well as favorable foreign-exchange rates. Shares jumped 3.82% in after-hour trade.

Revenues

Accenture reported fourth quarter net revenue of $6.69 billion, up 23.4% from $5.42 billion reported in the year-ago quarter. Net revenue was above the company’s guided range of $6.40 billion to $6.60 billion. The results included an 8.0% 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 23.0% for Financial Services, 23.0% for Communications & High Tech and 25.1% for Product. Revenues from Resources were up 28.1%, while Health & Public Services Group revenues grew 16.1% from the year-ago quarter. Other revenues grew 32.1% year over year.

Consulting and Outsourcing revenues increased 25.4% and 20.6% from the last year to $3.88 billion and $2.81 billion, respectively.

Geographically, year-over-year increases of 20.7%, 21.5% and 39.2% were seen in top-line contributions from the Americas, Europe Middle East and Africa (EMEA) and the Asia Pacific, respectively.

Bookings

Consulting bookings were $4.16 billion and outsourcing bookings were $4.28 billion. Net new bookings reflect a positive 9.0% foreign currency impact. According to management, bookings growth was attributable to increased demand for Accenture’s services.

Operating Results

The fourth quarter gross margin dropped 90 basis points year over year to 33.1%. The utilization rate dropped 100 basis points year over year to 85.0%. The decrease in gross margin was due to higher subcontractor costs, recruiting and training costs as well as an increase in annual compensation.

Total operating expenses grew 19.3% year over year due to increases of 17.5% in sales and marketing expenses and 9.0% in general and administrative expenses. However, as a percentage of net revenue, operating expenses were lower than the year-ago quarter. The operating margin was 13.8% compared to 13.2% in the year-ago quarter.

Accenture reported net income of $672.3 million or 91 cents a share, up from $510.3 million or 66 cents in the year-ago quarter. One-time items in the quarter were insignificant. The effective tax rate was 27.0% compared to 28.8% in fourth quarter 2010.

Balance Sheet & Cash Flow

Operating cash flow was $1.38 billion in the reported quarter compared to $1.35 million in the prior quarter. Net property and equipment additions were $137.0 million, up from $112.7 million in the prior quarter. Total cash balance as of August 31, 2011 increased to $5.71 billion from $5.26 billion in the preceding quarter. Accenture carries a total debt burden (long term plus short term) of $4.42 million.

Share Repurchase and Dividend

During the fourth quarter, Accenture repurchased 13.1 million of its common outstanding shares at a total value of $731.0 million. The activity includes 11.3 million shares repurchased in the open market. As of August 31, 2011 Accenture had roughly 704 million shares outstanding under the current authorization.

Accenture also paid a semi-annual cash dividend of 67.5 cents per share in the reported quarter, reflecting a 50.0% increase over the previous semi-annual dividend, declared in March.

Guidance

For the first quarter of fiscal 2012, Accenture expects net revenue in the range of $6.8 billion to $7.0 billion. This figure was arrived at after considering a 3% positive foreign-exchange impact. The Zacks Consensus Estimate for earnings is 92 cents.

For full fiscal 2012, net revenue growth is projected in the range of 7.0% to 10.0%. Expectations for new bookings are in the range of $28.0 billion to $31.0 billion. The company expects its operating margin in the range of 13.7% to 13.9% and the annual tax rate between 27.0% and 28.0%. Diluted EPS expectation is between $3.80 and $3.88. The earnings guidance is above the Zacks Consensus Estimate of $3.39.

Accenture also forecasts operating cash flow in the range of $3.6–$3.9 billion; property and equipment additions of roughly $490.0 million; and free cash flow in the range of $3.1 billion to $3.4 billion.

Recommendation

We find Accenture’s fourth quarter results encouraging, as the bottom line modestly beat the Zacks Consensus Estimate. Based on improving business momentum and market share gains, Accenture provided upbeat revenue and earnings guidance for fiscal 2012. 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 International Business Machines Corp. (IBM - Analyst Report), a strained spending environment and Accenture’s broad European exposure may temper growth prospects to some extent.

Currently, Accenture has a short-term Hold recommendation, denoted by the Zacks #3 Rank.

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