Accenture plc (ACN - Analyst Report) reported first quarter fiscal 2013 earnings per share (EPS) of $1.06, beating the Zacks Consensus Estimate of $1.04. Earnings increased 9.8% from the year-ago quarter attributable to higher revenues and margins and lower share count and tax rate, partially offset by lower non-operating income as well as foreign-exchange headwinds. Despite the beat, shares dropped 5.45% in the after-hours citing concerns around Euro issues (affecting lower spending for consulting services) and weak sequential guidance.
Accenture reported first quarter net revenue of $7.22 billion (including a 3.0% negative foreign exchange impact), up 2.1% from $7.07 billion in the year-ago quarter. Net revenue was roughly in line with the midpoint of the company’s guided range of $7.10 billion to $7.35 billion but was lower than the Zacks Consensus Estimate of $7.28 billion. Revenue growth moderated due to weak segment performances and Euro issues.
Among the operating segments, Health & Public Services generated double-digit revenue growth, which was supported by moderate single-digit growth in Financial Services. Product and Resources revenues grew 2.0% from the year-ago level. Communications, Media & Technology registered a 5.0% decline. Revenues from Resources and Other revenues were roughly flat.
Consulting revenue dropped 3.0% year over year to $3.96 billion, while registering a decent sequential growth. However, Outsourcing revenues increased 9.0% from the year-ago quarter to $3.26 billion.
Geographically, year-over-year increases of 8.0% and 7.0% were seen in top-line contributions from the Americas and the Asia Pacific, respectively. Accenture’s performance in the Europe, the Middle East and Africa (EMEA) region amidst the prevailing debt concern lacked luster, with a fall of 6.0% year over year.
Total new bookings for the first quarter were $7.5 billion, reflecting a negative 2.0% foreign-currency impact. Consulting bookings were $4.2 billion and outsourcing bookings were $3.3 billion.
First quarter gross margin increased 100 basis points (bps) year over year to 32.8%. Gross margin expansion was supported by higher utilization rate and lower attrition rate.
Total operating expenses increased 3.7% year over year due to an increase of 3.7% in sales and marketing expenses and 3.8% in general and administrative expenses. Operating margin was 14.5%, up 60 bps year over year.
Accenture reported net income of $757.8 million or $1.06 a share, up from $704.0 million or 96 cents in the year-ago quarter. One-time items in the quarter were insignificant. The effective tax rate was 26.8% as against 28.3% in the year-ago quarter.
Balance Sheet & Cash Flow
Operating cash usage was $108.8 million in the reported quarter compared with operating cash flow of $1.71 billion in the prior quarter. Net property and equipment additions were $86.5 million, down from $115.3 million in the prior quarter. Total cash balance decreased to $5.68 billion from $6.64 billion in the preceding quarter. Accenture carries no significant long-term debt burden.
Share Repurchase and Dividend
During the first quarter, Accenture repurchased 3.3 million of its common outstanding shares for a total value of $220.8 million. The activity includes 656,000 shares repurchased in the open market. As of November 30, 2012, Accenture had roughly 693 million shares worth $4.05 billion outstanding under the current authorization.
Accenture also paid a semi-annual cash dividend of 81 cents per share in the reported quarter amounting to $560.1 million.
For the second quarter of fiscal 2013, Accenture expects net revenue in the range of $6.9 billion to $7.15 billion, reflecting a sequential decline. This figure was arrived at after considering a 1.0% negative foreign-exchange impact. The company did not provide any second quarter update on EPS, but the Zacks Consensus Estimate is pegged at 97 cents.
For full fiscal 2013, management continues to expect net revenue growth in the range of 5.0% to 8.0%. Expectation for new bookings is in the range of $31.0 billion to $34.0 billion. The company continues to expect operating margin in the range of 14.1% to 14.2% (slightly up from previously guided 14.0%-14.1%) and annual tax rate between 26.0% and 27.0%. Diluted EPS expectation is between $4.24 and $4.32, up from previously guided range of $4.22 and $4.30. However, the Zacks Consensus Estimate of $4.27 is slightly lower than the midpoint of company’s expected range.
We find Accenture’s first quarter results a mixed bag with the bottom line beating the Zacks Consensus Estimate and top line missing the same. Growing focus on outsourcing business, operating cost optimization, new booking growth and continuous return of shareholder value were the quarter’s positives. Though weak consulting business could be a reason for concern, management seems confident that growth in outsourcing will mitigate the loss. Also, management’s commentary at the conference call to continue investing in priority industries (such as Communications), emerging markets, and geographical expansion as well as to boost its brand value could act as a catalyst for the stock.
We are encouraged by the steady flow of new business and believe that the trend will continue. However, increasing competition from International Business Machines Corp. (IBM - Analyst Report) , a strained spending environment and Accenture’s broad European exposure (roughly 40.0%) may temper its growth prospects to some extent.
Currently, Accenture has a Zacks #3 Rank (Hold).