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Why Is Accenture (ACN) Down 4.7% Since Last Earnings Report?

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It has been about a month since the last earnings report for Accenture (ACN - Free Report) . Shares have lost about 4.7% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Accenture due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Accenture Q4 Earnings Beat Estimates, Revenues Lag

Accenture reported mixed fourth-quarter fiscal 2019 results, wherein earnings surpassed the Zacks Consensus Estimate but revenues missed the same.

Earnings of $1.74 per share surpassed the consensus estimate by 3 cents and came ahead of the year-ago figure by 16 cents. The bottom line benefited from higher revenues and operating results, lower effective tax rate and lower share count.

Net revenues of $11.06 billion lagged the consensus mark by $13 million but increased 5% year over year on a reported basis and 7.2% in terms of local currency. Net revenues came in line with the higher end of the guided range of $10.85-$11.15 billion.

Revenues in Detail

On the basis of type of work, Consulting revenues (56% of net revenues) of $6.19 billion increased 5% year over year on a reported basis and 7% in terms of local currency. Outsourcing revenues (44%) of $4.87 billion increased 6% year over year on a reported basis and 8% in terms of local currency.

Segment wise, Communications, Media & Technology revenues (20% of net revenues) of $2.22 billion increased 4% year over year on a reported basis and 5% in terms of local currency. Financial Services revenues (19%) of $2.12 billion increased 2% year over year on a reported basis and 4% in terms of local currency. Health & Public Service revenues (17%) of $1.88 billion increased 7% year over year on a reported basis and 8% in terms of local currency. Products revenues (28%) of $3.09 billion increased 6% year over year on a reported basis and 8% in local currency. Resources revenues (16%) of $1.73 billion increased 9% year over year on a reported basis and 12% in terms of local currency.

Geographically, revenues from North Americas (47% of net revenues) of $5.23 billion increased 8% year over year on a reported basis as well as in terms of local currency. Revenues from Europe (32%) of $3.57 billion was flat year over year on a reported basis and increased 4% in terms of local currency. Revenues from Growth Markets (20%) of $2.26 billion increased 9% year over year on a reported basis and 12% in terms of local currency.

Booking Trends

Accenture reported new bookings worth $12.9 billion. Consulting bookings and Outsourcing bookings totaled $6.1 billion and $6.8 billion, respectively.

Operating Results

Gross margin (gross profit as a percentage of net revenues) for the fourth quarter of fiscal 2019 increased 30 basis points (bps) to 31.1%. Operating income was $1.57 billion, up 6.8% year over year. Operating margin in the reported quarter expanded 20 bps to 14.2%.

Balance Sheet & Cash Flow

Accenture exited fourth-quarter fiscal 2019 with total cash and cash equivalents balance of $6.13 billion compared with $4.77 billion at the end of the prior quarter. Long-term debt was $16.3 million compared with $19.9 million at the end of the prior quarter.

Cash provided by operating activities crossed $2.12 billion in the reported quarter. Free cash flow came in at $1.87 billion.

Dividend Payment

As mentioned earlier, Accenture is shifting its dividend payout policy from a semi-annual to quarterly basis. The company has declared its first quarterly cash dividend of 80 cents per share for shareholders of record at the close of business on Oct 17, 2019. This dividend will be paid out on Nov 15, 2019. The new quarterly dividend marks a 10% hike over the equivalent quarterly rate in fiscal 2019.

In fiscal 2019, the company paid out semi-annual cash dividends of $1.46 per share.

Share Repurchases

In line with the policy of returning cash to its shareholders, Accenture repurchased 2.1 million shares for $407 million in the fiscal third quarter. The company had approximately 636 million total shares outstanding as of Aug 31, 2019.

Guidance

First-Quarter Fiscal 2020

For first-quarter fiscal 2020, Accenture expects revenues to be in the range of $10.9- $11.2 billion, which indicates 5-8% growth in local currency. The assumption is inclusive of a negative foreign-exchange impact of 2%. Notably, the Zacks Consensus Estimate of $11.21 billion exceeds the current guided range marginally.

Fiscal 2020

Accenture provided its guidance for fiscal 2020. Management raised the EPS range to $7.62-$7.84. Revenues are expected to register 5-8% growth in terms of local currency. Operating margin for the fiscal year is expected to lie between 14.7 and 14.9%, indicating an expansion of 10-30 basis points from fiscal 2019. The company expects negative foreign exchange impact of 1% on its results in U.S. dollars. Operating cash flow is anticipated in the range of $6.35-$6.75 billion. Free cash flow is expected in the $5.7-$6.1 billion band. Annual effective tax rate is expected to be 23.5-25.5%.

How Have Estimates Been Moving Since Then?

Fresh estimates followed a downward path over the past two months.

VGM Scores

Currently, Accenture has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Charting a somewhat similar path, 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Accenture has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.


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