Accenture Earnings: Guidance And Orderbook Lacks Luster
Accenture (NYSE:ACN) reported its Q4 FY 2015 results on September 24th. ( Fiscal years end with August.) Due to the strong dollar, the company posted 1% year-over-year growth in revenues to $7.89 billion, though revenues were up 12% in constant currencies. This was above the company’s guided range of $7.45 billion to $7.7 billion. In our pre-earnings note published earlier, we stated that we expected consulting and outsourcing revenues to outpace the industry in the third quarter. This did materialize but the USD appreciation eroded reported growth, as we noted. We expected consulting revenues to register growth, and the company posted just 4% year-over-year growth in revenues to $4.2 billion, though it was up 14% in constant currencies. Outsourcing revenues decreased by 1% to $3.7 billion, though it was up 9% in constant currency. Additionally, during the quarter, the company reported new orders of $8.8 billion. [1] The slower growth rate in new signings indicates the underlying softness in demand for IT services and will surely impact Accenture’s revenues in future quarters. The company guidance for 2016 reflected this trend. In this note, we will review and analyze Accenture’s earnings.
See our full analysis for Accenture
Guidance For FY16 and Q1
Accenture expects net revenue growth in local currency to be in the range of 5% to 8%. It expects diluted EPS to be in the range of $5.09 to $5.24. Accenture expects net revenues for the first quarter of fiscal 2016 to be in the range of $7.70 billion to $7.95 billion, a growth rate of 6 percent to 9 percent in local currency. This range assumes a foreign-exchange impact of negative 8.5 percent compared with the first quarter of fiscal 2015.
Revenue Decline For Outsourcing Division Due To Currency Headwinds
According to our estimates, the outsourcing division contributes approximately 47.7% to Accenture’s value. While this division continued to outpace the outsourcing industry, net revenues as reported declined by 1% to $3.7 billion, but were up 9 % in constant currencies compared with the fourth quarter of fiscal 2014. However, Accenture reported higher than expected demand for its outsourcing services with new bookings at $4.7 billion or 54% of new bookings. The book-to-bill ratio, which indicates the dollar amount of new order received for every dollar amount of revenue billed, improved to 1.3 sequentially from 1.1. Considering the orders recorded in FY15, which declined by 6% (up 2% in constant currency) to $17.66 billion, we expect that outsourcing will struggle to deliver growth (in $ terms) in 2016.
Consulting Revenues Post Growth
Management and technology consulting are important drivers for Accenture’s value and account for around 44.5% of our price estimate combined. The company reported 4% year-over-year growth in revenues to $4.2 billion in USD (up 14% in constant currencies). Furthermore, the company’s momentum for new orders grew as it booked orders of $4.1 billion or 46% of total new bookings during the quarter. The book-to-bill ratio, the key metric that ascertains the growth in new contracts, stabilized at 1. The company expects mid to high single-digit positive growth for consulting in 2016.
Orderbook Signings Still Questionable
Accenture reported new signings worth $8.8 billion during Q4, which bought the total to $34.36 billion for FY15. This was 4% lower than the new signings in FY14. Even after adjusting for dollar appreciation against the local currencies (approximately 10%), the new order signings are tepid compared to those of 2014 and grew by 2.8%. While Accenture will meet its guidance for 2016, largely due to the 11 companies it acquired in Q4, its revenue growth in the coming years might lag the vigor posted in 2015 as the company books revenues against its outstanding order book.
We are in the process of updating our model. At present, we have a $79.86 price estimate for Accenture, which is 22% below its current market price.
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Notes:
- Accenture’s 8-K, September 24 2015, www.sec.gov [↩]