Accenture Earnings: Revenues And Order Book Grow, One Time Cost Impacts Guidance
Accenture (NYSE:ACN) reported its Q3 2017 results on June 22, posting 5% year-over-year growth (7% in constant currency) in revenues to $8.87 billion. In our pre-earnings note published earlier, we stated that we expected both Consulting revenues and Outsourcing revenues to outpace the industry in the third quarter. Both divisions did report growth in earnings, and the company reported record new bookings worth $9.8 billion for the quarter, reflecting a negative 1% foreign-currency impact compared with new bookings in the third quarter last year. [1]
- Consulting net revenues for the quarter were $4.82 billion, an increase of 4% year-over-year in U.S. dollars and 6% in constant currency.
- Outsourcing net revenues were $4.05 billion, an increase of 6% in U.S. dollars and 7% in constant currency.
Despite the growth in revenues, Accenture’s stock price declined by over 5% as the company lowered its full-year EPS guidance due to one-time pension settlement costs. The details of earnings are below.
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Guidance For FY17 and FYQ4
Accenture expects its net revenue to be in the range of $8.85 billion to $9 billion in fiscal Q4, growth of 5-8% in constant currency. For fiscal 2017, the company has revised its guidance downwards due to a negative impact on revenues from the strengthening dollar. The company stated in its press release that it recorded a $510 million non-cash settlement charge in May related to the termination of its pension plan in the U.S. This settlement charge will reduce the company’s fiscal 2017 diluted GAAP EPS by approximately $0.47 and its full-year GAAP. Based on this update, it expects diluted EPS to be in the range of $5.37 to $5.44 for the year. Accenture also revised its operating margin for the full fiscal year to 13.3, a 150 basis-point impact of the pension settlement charge. Excluding the settlement charge, the company expects its operating margin to be 14.8%, an expansion of 20 basis points from fiscal 2016.
Order Book Signings Grows To Record High
Accenture reported new signings of $9.8 billion during Q3, which brought the total order backlog to $36.3 billion, according to our estimates. Even though the level of new bookings follows the typical pattern of new bookings in the third quarter, new order signings grew by 7.5% compared to those in Q3 2016 reflecting the second-highest level of new bookings in Accenture’s history. Considering the historical book-to-bill ratio, we expect solid revenue growth in the final quarter and the ensuing year. Additionally, the company will likely continue to add to revenue growth through acquisitions.
Consulting Revenues Post Growth Yet Again
Management and Technology Consulting are important drivers for Accenture’s value and account for around 55% of our price estimate for the company. Consulting revenues for the quarter were $4.82 billion, up 4%. Furthermore, the company’s momentum for new orders grew as it booked orders of $5.2 billion (or 53% of total new bookings) during the quarter, a new record. The book-to-bill ratio, the key metric that ascertains the growth in new contracts, stabilized at 1.08x.
While the new signings for consulting have been above expectations, we expect that the Consulting business will deliver mid to low-single-digit growth in Q4 2017 as significant investments in new and high-growth areas across Accenture continue to gain traction in the year. Specific areas of higher growth – which include digital, cloud and security services – now account for more than $4.7 billion or 50% of total revenues. Accenture continues to acquire companies in these verticals to bolster revenue growth and gain a foothold in emerging technologies. This bodes well for the company in the future.
Outsourcing Revenues Post Robust Growth
According to our estimates, the Outsourcing division contributes approximately 41% of Accenture’s value. During the quarter, this division continued to outpace the broader outsourcing industry, as net revenues grew by 6% to $4.05 billion. Accenture reported strong demand for its outsourcing services, with new bookings at $4.6 billion. The outsourcing book-to-bill ratio grew to 1.18x in the quarter. The company expects mid-single digit growth for its outsourcing services, and we believe that the company can deliver these results as order signings for the company improved by 10% during the third quarter of the fiscal year 2017.
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- Accenture’s Investor relations, June 22 2017 [↩]