A month has gone by since the last earnings report for Accenture (ACN - Free Report) . Shares have added about 4.8% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Accenture 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 Q1 Earnings Beat Estimates
Accenture plc reported strong first-quarter fiscal 2019 results wherein both earnings and revenues surpassed the Zacks Consensus Estimate.
Adjusted earnings of $1.96 per share surpassed the Zacks Consensus Estimate by 12 cents and came ahead of the year-ago figure by 17 cents. The bottom line benefited from higher revenues and operating results, lower effective tax rate and lower share count. These were, however, partially offset by higher non-operating expense.
Net revenues of $10.6 billion beat the consensus mark by $131.9 million and increased 7% year over year on a reported basis and 9.5% in terms of local currency. Net revenues came within management’s guided range of $10.35-$10.65 billion.
On the basis of type of work, Consulting revenues (56% of net revenues) of $5.97 billion increased 8% year over year on a reported basis and 10% in terms of local currency. Outsourcing revenues (44%) of $4.64 billion increased 7% year over year on a reported basis and 9% in terms of local currency.
Among the operating segments, Communications, Media & Technology revenues (20% of net revenues) of $2.13 billion increased 11% year over year on a reported basis and 14% in terms of local currency. Financial Services revenues (20%) of $2.12 billion decreased 1% year over year on a reported basis as well as in terms of local currency. Health & Public Service revenues (17%) of $1.75 billion increased 4% year over year on a reported basis and 5% in terms of local currency. Products revenues (28%) of $2.93 billion increased 8% year over year on a reported basis and 10% in local currency. Resources revenues (15%) of $1.65 billion increased 18% year over year on a reported basis and 21% in terms of local currency.
Geographically, revenues from North Americas (46% of net revenues) of $4.86 billion increased 9% year over year on a reported basis and 10% in terms of local currency. Revenues from Europe (35%) of $3.71 billion increased 4% year over year on a reported basis and 6% in terms of local currency. Revenues from Growth Markets (19%) of $2.04 billion increased 10% year over year on a reported basis and 17% in terms of local currency.
Accenture reported new bookings worth $10.2 billion. Consulting bookings and Outsourcing bookings for the reported quarter totaled $5.9 billion and $4.3 billion, respectively.
Gross margin (gross profit as a percentage of net revenues) for the first quarter of fiscal 2019 increased 10 basis points (bps) to 31.1%. Operating income was $1.63 billion, up 9% year over year. Operating margin for the reported quarter expanded 20 bps.
Balance Sheet & Cash Flow
Accenture exited first-quarter fiscal 2019 with total cash and cash equivalents balance of $4.36 billion compared with $5.06 billion at the end of the prior quarter. Long-term debt was $19.9 million compared with $19.7 million at the end of the prior quarter. Cash provided by operating activities was $1.03 billion in the reported quarter. Free cash flow came in at $950 million.
On Nov 15, Accenture’s board of directors paid a semi-annual cash dividend of $1.46 per share to shareholders of record at the close of business on Oct 18. The total cash dividend paid was $933 million in the reported quarter. This dividend payment reflects an increase of 10% over the previous semi-annual dividend declared in March.
In line with its policy of returning cash to shareholders, Accenture repurchased 4.9 million shares for $788 million in the fiscal first quarter. The company had approximately 638 million total shares outstanding as of Nov 30.
Second Quarter Fiscal 2019
For second-quarter fiscal 2019, Accenture expects revenues to be in the range of $10.10- $10.40 billion, which reflects 6-9% growth in local currency. The assumption is inclusive of a negative foreign-exchange impact of 4%.
Accenture updated its guidance for fiscal 2019. The company expects negative foreign-exchange impact of 3% on its results in U.S. dollars compared with an impact of 2.5% as mentioned earlier.
For fiscal 2019, the company now expects revenues to register 6-8% growth in terms of local currency compared with 5-8% growth rate as expected previously. Earnings per share are now anticipated in the range of $7.01 to $7.25 compared with a range of $6.98 to $7.25 guided earlier.
Operating margin for fiscal 2019 is still expected in the range of 14.5-14.7%, indicating an expansion of 10 to 30 basis points from fiscal 2018. The uptick can be attributed to impact of the new revenue and pension accounting standards.
The company continues to expect operating cash flow between $5.75 billion and $6.15 billion and free cash flow in the range of $5.1-$5.5 billion. Annual effective tax rate is expected to be between 23 and 25%
How Have Estimates Been Moving Since Then?
Fresh estimates followed a downward path over the past two months.
At this time, Accenture has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Accenture has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.