Accenture (NYSE:ACN) is set to announce its Q2 FY2014 results on March 27. In the previous quarter, the company delivered good growth for its outsourcing division which has outpaced the industry. The company reported 3% year-over-year growth in constant currency to $7.4 billion. However, soft global demand for consulting services plagued its consulting business as revenues were flat. In this earnings announcement, apart from the growth in outsourcing division, we will closely monitor revenue from consulting division, as it is critical for Accenture’s future growth. Additionally, 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 FY14
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- Accenture Earnings: New Signings And Revenue Growth Continues.
- Accenture Pre Earnings: What We Are Expecting?
- What Percentage of Accenture’s Stock Price Can Be Attributed To Growth?
- Why Has Accenture’s’ Stock Gone Up By 29% In the Last Nine Months?
- Strong Consulting Revenues And Signings Buoys Accenture’s Results
Accenture expects net revenues for fiscal 2014 to grow in 2% to 6% range (with a midpoint of $29.70 billion) and GAAP operating profit margins to improve to 14.3% to 14.5% range. However, it expects a mild improvement in diluted EPS, which should now be in the $4.44 to $4.56 range. The company plans to book new orders worth $32 billion to $35 billion for fiscal 2014. In the outlook for Q2 2014, Accenture expects revenues to range from $6.95 – $7.25 billion.
Growth In New Business Verticals In Focus
Accenture continues to focus its vertical industry practice groups on the provision of leading-edge needs of its clients in emerging areas such as analytics, digital marketing, cloud and mobility computing and communications. Satisfying these needs will not only bolster its growth in the coming quarters, it will focus its client relationships on the highest value, most profitable parts of the business. The company’s goal is to enhance its client engagements by operating as much as possible at the strategic, C-level echelon, where they can make both the biggest difference and the most money. In this earnings announcement, we will be closely monitoring the release and commentary for the impact of these efforts in driving Accenture’s overall revenues and margins.
Outsourcing Revenues To Grow
According to our estimates, the outsourcing division contributes approximately 43% to Accenture’s value. Accenture’s outsourcing division has outpaced the industry, and clocked in nearly 6% year-over-year growth in previous quarters. The company also booked $4.4 billion worth of fresh contracts in Q1 2014, and the book-to-bill ratio was at 1.3 during the quarter. We expect this trend to continue in Q2, 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 improve to 1.4 in Q2.
Consulting Revenues Under The Lens
Management and technology consulting are important drivers for Accenture’s value and account for around 45% of our price estimate combined. This division has failed to deliver growth as revenues have been flat or declining due to two factors. Firstly, the business environment remains challenging as clients continue to shy away from discretionary IT spending. Secondly, Accenture continues to book long-term contracts, which take longer time to convert to revenue. However, prospects for this division are improving as more companies are looking to improve their efficiency to increase production. In this earnings announcement, we expect the company to report a strong build up in pipeline for consulting, which will help the company to post growth in revenue in the coming years. Additionally, we will monitor the consulting division’s book-to-bill ratio, which indicates the revenues from previous bookings.
We currently have a $76.09 Trefis price estimate for Accenture, which is 8.13% below its current market price.