Accenture Earnings Preview: Revenues To Grow, But New Signings Likely Under Pressure
Accenture (NYSE:ACN) is set to announce its Q1 FY2016 results on December 17th. (Fiscal years end in August.) While the company continues to deliver growth in the topline, its revenues have been impacted by the appreciating dollar. In the previous quarter, the company delivered strong growth for its consulting business, which has outpaced the industry. However, weak demand for outsourcing impacted the topline. The chief point of concern was lower-than-expected order bookings across both consulting and outsourcing segments. While we believe that the company will be able to post growth in the quarter, largely due to inorganic growth from acquiring companies over the past quarter, future revenue growth might be impacted due to order book run-off.
See our full analysis on Accenture
Guidance For FY15 and Fiscal Q4
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. Management guides 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% to 9% in local currency. This range assumes a foreign-exchange impact of negative 8.5% compared with the first quarter of fiscal 2015.
Outsourcing Revenues To Improve
According to our estimates, the outsourcing division contributes approximately 47.7% to Accenture’s value. While Accenture’s outsourcing division did not do well in Q4, it did post a healthy growth in new order signings. Accenture reported demand for its outsourcing services grew in Q4 with new bookings at $4.7 billion. However, 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 in Q4 and we expect it to stabilize around this figure in Q1. Additionally, a weakening dollar would continue to impact topline growth, which would be higher in constant currency.
Consulting Revenues To Grow
Consulting is an important driver for Accenture’s value and account for around 44.5% of our price estimate combined. Consulting division exited FY15 with growth as consulting business activity improved in Europe. Furthermore, order pipeline improved slightly by $4.1 billion in Q4. Nevertheless, we believe that new order signings and revenues were under pressure in Q1 due to three primary factors. First, the business environment remains challenging as clients continue to shy away from discretionary IT spending. Second, Accenture continues to book long-term contracts, which take longer to convert to revenue. Third, pricing pressure continues to suppress the growth in consulting. However, the company has acquired a host of new companies in FY 2015 that should add inorganically to its topline and orderbook. This will likely spur growth from consulting for Q1 and FY2016.
We currently have a $80.07 Trefis price estimate for Accenture, which is 24% below its current market price.
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