Accenture’s Results Show Outlook Steadily Improving

Accenture (NYSE:ACN) reported its Q2 FY 2013 results on March 28 and the company reported revenues in line with the guidance provided. Revenue rose 4% y-o-y to $7.1 billion, driven by growth in the outsourcing business. Accenture reported an increase in earnings per share to $1.65, which includes $0.65 per share due to a reduction in the reorganization liabilities and final determination of prior year tax liability. Accenture, therefore, reported an increase of 9% in EPS from operations on an annual basis after adjusting for non-cash transaction.

The consulting business revenues declined by 1% to $3.8 billion for Q2FY13 while the outsourcing business revenues grew 9% to $3.3 billion. Accenture’s operating margin grew to 13.3% compared to 13.1% at the same time last year, leading to an operating income of $940 million. Net income for Accenture was $1.19 billion, which includes the favorable impact of both the $224 million from reorganization benefit and $243 million from final determinations of prior-year tax liabilities. Accenture continues to report a strong order pipeline with $9.1 billion new booking in Q2FY13 which includes $4.4 billion bookings in consulting and $4.7 billion bookings in outsourcing. ((Quarterly Earnings Accenture, March 28 2013, www.seekingalpha.com))

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Consulting Revenue To Drive Growth In Second Half of 2013

The outsourcing business has helped the company sustain the downturn in Europe during the last two quarters. However, the consulting business, which has shown a slight decline in the previous quarters, will be the chief driver for revenue growth in the coming quarters. In Q2FY13, Accenture booked a record $4.4 bilion in new orders for the consulting business. Accenture reported a book to bill ratio of 1.1, which means that current bookings were higher than revenue from previous bookings. We expect that revenue from consulting will match our projected growth for consulting in FY13, as the company will book revenue against outstanding contracts in second half of FY13. ((Quarterly Earnings Accenture, March 28 2013, www.seeekingalpha.com))

New Business Offerings To Improve Margins

Accenture continues to improve its service offering for social media, mobile computing, analytics and the cloud. It expects new business ventures in analytics, digital marketing and mobility to help drive growth in 2013. We expect these new initiatives to be a key margin driver for 2013 and beyond, which is reflected in our current EBITDA margin estimates for the company of between 16% to 18% depending on its divisions. In its most recent earnings call, the company guided to operating margins of near 15% for 2013.

Outlook For Coming Quarters of 2013

Accenture has given a revenue growth guidance of 5%-8% for second half of 2013, and it expects bookings from the previous quarters to convert into revenues in the second part of the fiscal year. The company has also stated that the conversion from contracts to revenue for consulting is picking up gradually. Considering the long term nature of consulting contracts booked, we expect revenue growth to be at the lower end of this guidance for 2013.

In the outlook for Q3 2013, Accenture expects revenues to range from $7.25 – $7.5 billion. The company expects bookings for 2013 to be in the range of $31-$34 billion and EPS to fall between $4.24 – $4.32 for FY13 which excludes reorganization benefit and prior year tax liability.

We currently have a $70 Trefis Price Estimate for Accenture which is slightly below its current market price.

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