Accenture Lowers Its Guidance As Consulting Revenues Decline
Accenture (NYSE:ACN) reported its Q3 FY 2013 results on June 27. The company reported revenues below its guidance as soft demand continued to plague its business. While revenues were flat at $7.2 billion, operating income increased by 3% to $1.14 in Q3. Additionally, Accenture reported an increase in diluted earnings per share to $1.21, which includes $0.07 per share due to reorganization benefit.
We had argued in our article published earlier that consulting revenues will be higher in the second half of FY 2013; however, consulting revenues declined in the quarter due to soft demand for consulting services from clients. [1] While the outsourcing revenue grew by 4.45% y-o-y to $3.3 billion, the consulting business declined by 2.47% y-o-y to $3.8 billion. However, Accenture continues to report a strong order pipeline with $8.3 billion new booking in Q3 FY13 which includes $3.9 billion bookings in consulting and $4.4 billion bookings in outsourcing. [2]
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2013 Revenue Guidance Lowered
Accenture has lowered its revenue outlook for fiscal 2013 and now expects net revenue growth to be in the range of 3% to 4%. Accenture previously expected net revenue growth for the year to be in the lower half of 5% to 8% range. The company now expects diluted EPS for fiscal 2013 to be in the range of $4.90 to $4.94, compared with its previously guided range of $4.89 to $4.97. However, Accenture has revised its guidance of GAAP operating profit margins upwards and expects it to be in 15.2% to 15.3% range for FY13. Additionally, Accenture continues to target new bookings for FY13 in the range of $31 billion to $34 billion. For Q4 FY 13, Accenture expect revenues to be in the range of $6.7 billion to $7 billion.
Consulting Revenues Below Expectation
Accenture reported that marco environment in consulting continued to be challenging, and its clients reduced the pace and level of spending. As a result, Accenture reported 2.47% decline in revenues to $3.8 billion for Q3 2013. Additionally, Accenture booked $3.9 billion in new orders for its consulting business which were $400 million less than the expected new orders. Moreover, the new contracts signed are of longer duration and therefore, conversion from booking to revenue will take a longer time. Management and technology consulting are important drivers for Accenture’s value and account for around 46% of our price estimate combined, and we expect revenues from consulting will continue to remain tepid as the demand for consulting is soft.
Outsourcing Delivers Growth in Q3
Consistent double-digit growth in the outsourcing business in the past year has helped the company manage the downturn in demand. Outsourcing division delivered yet another quarter of strong earnings growth as revenues increased by 4.5% y-o-y to $3.31 billion. Additionally, Accenture reported strong demand for its outsourcing services and new bookings were well above its expectations. The company booked $4.4 billion worth of fresh contracts in Q3 2013, and we expect that outsourcing revenues will continue to deliver growth in Q4 as well.
New Business Offerings To Improve Margins
Accenture continues to improve its service offering for social media, mobile computing, analytics and the cloud. During the quarter, the company strategically invested in digital marketing to improve the Accenture Interactive line of digital marketing services. [3] Additionally, Accenture formed a strategic alliance with GE to develop application for analyzing big data across its industrial division recently. We expect these new initiatives to be a key margin driver for the company. In its earnings call, the company guided to operating margins of near 15.2% for 2013 and we have increased our current EBITDA margin estimates for the company by 30 basis points to reflect this improvement.
We currently have a $74 Trefis Price Estimate for Accenture which is in-line with its current market price.
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Notes:- See Accenture Earnings Preview: What We’re Watching [↩]
- Accenture’s 8-K , June 27 2013, www.sec.gov [↩]
- See Accenture Bolsters Its Interactive Marketing Platform With Two Acquisitions [↩]