Accenture Earnings:Revenue Growth Across Divisions
Accenture (NYSE:ACN) reported its Q3 FY 2014 results on June 26, and the results exceeded markets expectations as the company posted nearly 7% year-over-year growth in revenues to $7.74 billion. This was above the company’s guided range of $7.40 billion to $7.65 billion. In our note published earlier, we stated that we expected outsourcing revenues to outpace the industry in the second quarter. Furthermore, we also expected consulting revenues to register growth. The company result was in line with our expectation as outsourcing revenue grew 9% year over year in constant currency to $3.65 billion, while the consulting business revenues grew 5% year over year to $4.09 billion. Furthermore, as per our expectations, the company reported a strong order pipeline and booked new orders worth $8.8 billion in Q3 FY14. [1]
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Guidance For Q4 and FY14
In its outlook for Q4 2014, Accenture expects revenues to range from $7.45 – $7.7 billion. For fiscal year 2014, Accenture now expects net revenue growth to be in the 4 – 5% range and GAAP operating profit margins to 14.3%. However, it revised its diluted EPS guidance down to $4.50 – 4.54. The company expects new bookings for fiscal 2014 to $33 – $36 billion range.
Revenue Growth Continues At Outsourcing Division
According to our estimates, the outsourcing division contributes approximately 43% to Accenture’s value. This division continued to outpace the outsourcing industry as revenues grew by 9% to $3.45 billion. Additionally, Accenture continued to report strong demand for its outsourcing services with new bookings at $4.5 billion. However, the book-to-bill ratio, which indicates the dollar amount of new order received for every dollar amount of revenue billed, declined by 40 basis points sequentially to 1.2. Considering this strong order pipeline, we expect that outsourcing will continue to deliver growth in Q4 as well.
Consulting Revenues Post Growth
Management and technology consulting are important drivers for Accenture’s value and account for around 45% of our price estimate combined. For the first time in many quarters, the company reported 5% year-over-year growth in revenues to $4.09 billion. Furthermore, the company continued to report momentum in new order, at $4.3 billion, which might help the company to post growth in Q4. The book-to-bill ratio, the key metric that ascertains the growth in new contracts, was flat at 1.1. Pricing pressure suppressed growth in consulting revenues even though the company delivered good growth in consulting volumes. We expect this trend to continue in the coming quarters, which will suppress growth from consulting.
We are in the process of updating our model. At present, we have a $76.09 Trefis price estimate for Accenture, which is 7.5% below its current market price.
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Notes:- Accenture’s 8-k, June 26 2014, www.sec.gov [↩]