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Accenture (ACN) Earnings and Revenues Beat Estimates in Q2

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Accenture plc (ACN - Free Report) 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.

Shares of Accenture have rallied 28.1% over the past year, outperforming 24.6% growth recorded by the industry it belongs to.

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). Outsourcing revenues were up 13% on a year-over-year basis ($4.43 billion). It is worth mentioning that both Consulting revenues and Outsourcing revenues were up 11% and 8% from the year ago quarter in local currency, 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.

Accenture PLC Price, Consensus and EPS Surprise

Accenture PLC Price, Consensus and EPS Surprise | Accenture PLC Quote

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

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.


For third-quarter fiscal 2018, Accenture expects net revenues between $9.90 billion and $10.15 billion. The Zacks Consensus Estimate is pegged at $9.70 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. The Zacks Consensus Estimate is pegged at $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.

Our Take

Accenture delivered stellar second-quarter results, wherein it topped the Zacks Consensus Estimate on both the counts. The company also raised fiscal 2018 guidance.

The company’s product launches, consistent investments in enhancing digital and marketing capabilities, along with major acquisitions will smoothen the path for its growth. Notable recent acquisitions include the likes of Mackevision, Altima and Rothco.

Accenture’s strategy of growing through partnerships like Apple (AAPL - Free Report) and buyouts like IBB Consulting and VERAX are encouraging.

However, Accenture’s announcement of creating new jobs and investment plan of $1.4 billion in the United States may dent its bottom-line results in our opinion. Additionally, stiff competition from peers having the likes of Cognizant Technology Solutions (CTSH - Free Report) and IBM Corp. (IBM - Free Report) is a concern.

Accenture currently carries a Zacks Rank #3 (Hold).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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