Accenture (NYSE:ACN) is set to announce its Q1 FY2014 results on December 19. In the previous quarter, the company delivered better than expected growth as its outsourcing division continued to outpace the industry. The company reported 4% y-o-y increase in revenues to $7.1 billion in Q2. However, soft global demand for consulting services continued to plague its consulting business.
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- Accenture Earnings: New Signings And Revenue Growth Continues.
- Accenture Pre Earnings: What We Are Expecting?
In this earnings announcement, we will closely monitor revenue growth in Accenture’s outsourcing business. Additionally, since consulting revenues have failed to deliver growth in the previous quarters, we continue to observe the consulting order pipeline as it will give us fair indication of whether global consulting demand is on the mend.
Guidance For FY 2014
Accenture expects net revenues for FY 2014 to grow in 2% to 6% range and diluted EPS to be in the $4.42 to $4.54 range. However, Accenture expects GAAP operating profit margins to improve to 14.3% to 14.5% range for FY14. Additionally, Accenture is targeting new bookings for fiscal 2014 in the range of $32 billion to $35 billion. For Q1 2014, Accenture expects revenues to be in $7-$7.3 billion range.
Outsourcing Revenues To Grow
According to our estimates, the outsourcing division contributes approximately 40% to Accenture’s value. While Gartner predicts global outsourcing to grow by 2.8% in 2013 to $288 billion, Accenture’s outsourcing division has outpaced the industry, and clocked in nearly 6% y-o-y growth in previous quarters.  The company also booked $4.6 billion worth of fresh contracts in Q4 2013, and the book-to-bill ratio improved to 1.4 during the quarter. We expect this trend to continue in Q1, and Accenture to report mid single-digit growth in revenues and order book. We also anticipate the book-to-bill ratio for the company to stabilize at 1.4 for Q1.
Tough Business Environment To Weigh On Consulting Revenues
Management and technology consulting are important drivers for Accenture’s value and account for around 45% of our price estimate combined. This division continues to report declines in revenues due to two factors. Firstly, the business environment remains challenging as clients continue to shy away from discretionary IT spends. Secondly, Accenture continues to book long-term contracts, which take longer time to convert to revenue. Furthermore, the pipeline for faster converting medium-term and short-term contract is low. This imbalance in contract ‘types’ has led to a visible decline in quarterly consulting revenue in the previous quarters. We expect that consulting revenue growth will continue to disappoint in Q1 as well. However, we expect the company to report a healthy build-up in contracts, particularly from large deals, during the earnings announcement. Additionally, we will continue to review the consulting division’s book-to-bill ratio, which indicates the revenues from previous bookings.
New Business Verticals To Drive Growth
Accenture continues to emphasize on new business ventures such as analytics, digital marketing, cloud and mobility that will bolster its growth in the coming quarters. While these businesses not only garner high margins, they also have exceptionally high growth rate as widespread adoption of Internet and cloud services prevails. In this earnings announcement, we want to know whether the growth in these new business ventures is on track. We will be closely monitoring the margins for these new business verticals as it can help in boosting Accenture’s overall margins.
We currently have a $74.06 Trefis price estimate for Accenture, which is in line with its current market price.Notes:
- Gartner Says Worldwide IT Outsourcing Market to Reach $288 Billion in 2013, July 17 2013, www.gartner.com [↩]