Accenture Earnings: Strong Dollar Impacts Revenue And New Signings Growth
Accenture (NYSE:ACN) reported its Q1 FY 2016 results on December 17th. (Fiscal years end with August.) Due to the strong dollar, the company posted 1% year-over-year growth in revenues to $8 billion, though revenues were up 10% in constant currencies. This was above the company’s guided range of $7.70 billion to $7.95 billion. [1] In our pre-earnings note published earlier, we stated that we expected consulting revenues to outpace the industry in the first quarter, while outsourcing revenue to remain lackadaisical. This did not come to pass even as the USD appreciation eroded reported growth
- Consulting net revenues for the quarter were $4.35 billion, an increase of 6% in U.S. dollars and 15% in local currency compared with the first quarter of fiscal 2015.
- Outsourcing net revenues were $3.67 billion, a decrease of 4% in U.S. dollars and an increase of 5% in local currency over the first quarter of fiscal 2015.
During the quarter, the company reported new orders of $7.7 billion, reflecting a negative 8% foreign currency impact compared with new bookings in the first quarter last year. [2] In this note, we will review and analyze Accenture’s earnings.
See our full analysis for Accenture
Guidance For FY16 and FYQ2
Accenture expects net revenue in local currency to be in the range of $7.50 billion to $7.75 billion in FQ2. It expects diluted EPS to be in the range of $5.09 to $5.24. For fiscal 2016, the company now expects net revenue growth to be in the range of 6% to 9% in local currencies, compared with 5% to 8% previously. The company continues to expect diluted EPS to be in the range of $5.09 to $5.24. This range assumes a foreign-exchange impact of negative 5% compared with the second quarter of fiscal 2015.
Orderbook Signings Still Questionable As Appreciating Dollar Plays Spoil Sport
Accenture reported new signings worth $7.7 billion during Q1, which bought the total order backlog to $34.06 billion, based on our calculations. Even though the level of new bookings follows typical pattern of lower new bookings in first quarter, the new order signings are tepid compared to those of Q1 2015 and were flat. After adjusting for dollar appreciation against the local currencies, level of new bookings represents 9% growth in local currency over last year’s quarter one, with a significant portion expected to convert to revenue in fiscal ’16. Therefore, we conclude that Accenture’s revenues in future quarters might lack luster as new signings were subpar in fiscal year 2015.
Consulting Revenues Post Growth
Management and technology consulting are important drivers for Accenture’s value and account for around 44.3% of our price estimate combined. Consulting revenues for the quarter were $4.3 billion, up 6% in USD and 15% in local currencies. Furthermore, the company’s momentum for new orders grew as it booked orders of $4.4 billion or 57% of total new bookings during the quarter. The book-to-bill ratio, the key metric that ascertains the growth in new contracts, stabilized at 1.0. The company expects low double-digit positive growth for consulting in 2016 driven by strong double-digit growth in strategy and consulting services for digital related services.
Outsourcing Revenues Decline Due To Currency Headwinds
According to our estimates, the outsourcing division contributes approximately 47.4% to Accenture’s value. While this division continued to outpace the outsourcing industry, net revenues as reported declined by 4% to $3.7 billion, but were up 5 % in constant currencies compared with the first quarter of fiscal 2015. However, Accenture reported soft demand for its outsourcing services with new bookings at $3.3 billion or 43% of new bookings. The book-to-bill ratio, which indicates the dollar amount of new order received for every dollar amount of revenue billed, declined to 0.9. While the company expects mid single-digit growth for its outsourcing services, considering the orders recorded in Q1FY16, which declined by 4% in USD, we believe that the company will struggle to deliver results in case its order signings do not improve over the remainder of FY2016.
We are in the process of updating our model. At present, we have a $80.07 price estimate for Accenture, which is 24% below its current market price.
Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap
More Trefis Research
- 10-Q, www.sec.gov [↩]
- Accenture’s Investor relations, December 17 2015 [↩]