A month has gone by since the last earnings report for Accenture (ACN - Free Report) . Shares have added about 3.3% 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 Surpasses Q2 Earnings Estimates, FY19 View Up
Accenture reported impressive second-quarter fiscal 2019 results, wherein both earnings and revenues surpassed the Zacks Consensus Estimate.
Earnings of $1.73 per share surpassed the consensus estimate by 16 cents and came ahead of the year-ago figure by 15 cents. The bottom line benefited from higher revenues and operating results, lower non-operating expense and lower share count. These were, however, partially offset by higher effective tax rate.
Net revenues of $10.45 billion outpaced the consensus mark by $167.4 million and increased 5% year over year on a reported basis and 9% in terms of local currency. Net revenues came above the management’s guided range of $10.10-$10.40 billion.
Revenues in Detail
On the basis of type of work, Consulting revenues (55% of net revenues) of $5.79 billion increased 6% year over year on a reported basis and 9% in terms of local currency. Outsourcing revenues (45%) of $4.67 billion increased 5% 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 $2.15 billion increased 8% year over year on a reported basis and 12% in terms of local currency. Financial Services revenues (20%) of $2.05 billion decreased 2% year over year on a reported basis but improved 2% in terms of local currency. Health & Public Service revenues (16%) of $1.71 billion increased 1% year over year on a reported basis and 3% in terms of local currency. Products revenues (28%) of $2.91 billion increased 6% year over year on a reported basis and 10% in local currency. Resources revenues (16%) of $1.64 billion increased 17% year over year on a reported basis and 22% in terms of local currency.
Geographically, revenues from North Americas (45% of net revenues) of $4.75 billion increased 8% year over year on a reported basis as well as in terms of local currency. Revenues from Europe (35%) of $3.63 billion increased 1% year over year on a reported basis and 7% in terms of local currency. Revenues from Growth Markets (20%) of $2.07 billion increased 9% year over year on a reported basis and 16% in terms of local currency.
Accenture reported new bookings worth $11.8 billion. Consulting bookings and Outsourcing bookings totaled $6.7 billion and $5.1 billion, respectively.
Gross margin (gross profit as a percentage of net revenues) for the second quarter of fiscal 2019 increased 30 basis points (bps) to 29.2%. Operating income was $1.39 billion, up 7% year over year. Operating margin for the reported quarter expanded 20 bps to 13.3%.
Balance Sheet & Cash Flow
Accenture exited second-quarter fiscal 2019 with total cash and cash equivalents balance of $4.46 billion compared with $4.36 billion at the end of the prior quarter. Long-term debt was $19.8 million compared with $19.9 million at the end of the prior quarter.
Cash provided by operating activities grossed $1.36 billion in the reported quarter. Free cash flow came in at $1.22 billion.
Accenture declared a semi-annual cash dividend of $1.46 per share for its shareholders of record at the close of business on Apr 11, 2019. The dividend will be paid on May 15, 2019.
Combined with the semi-annual cash dividend of $1.46 per share paid on Nov 15, 2018, the total cash dividend payment for the fiscal year will be $2.92 per share.
The company plans to pay dividends on a quarterly basis from the first quarter of fiscal 2020.
In line with the policy of returning cash to its shareholders, Accenture repurchased 6.7 million shares for $1.01 billion in the fiscal second quarter. The company had approximately 639 million total shares outstanding as of Feb 28, 2019.
Third-Quarter Fiscal 2019
For third-quarter fiscal 2019, Accenture expects revenues to be in the range of $10.80- $11.10 billion, which reflects 5.5-8.5% growth in local currency. The assumption is inclusive of a negative foreign-exchange impact of 4.5%. Notably, the Zacks Consensus Estimate of $11.05 billion lies within the current guided range.
Accenture updated its guidance for fiscal 2019. The company continues to expect negative foreign-exchange impact of 3% on its results in U.S. dollars.
Management raised anticipated EPS range to $7.18-$7.32 from 7.01-$7.25 anticipated earlier. Revenues are expected to register 6.5-8.5% growth, in terms of local currency, compared with 6-8% growth rate as expected previously.
Operating margin for the fiscal year is still expected in the range of 14.5-14.7%, indicating an expansion of 10-30 basis points from fiscal 2018.
Operating cash flow is anticipated in the range of $5.85-$6.25 billion compared with $5.75-$6.15 billion projected earlier. Free cash flow is expected in the $5.2-$5.6 billion band compared with the previously guided range of $5.1-$5.5 billion.
Annual effective tax rate is expected to be 22.5-23.5% compared with 23-25% anticipated earlier.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
At this time, Accenture has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, the stock was 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.
Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Accenture has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.