Accenture’s Revenue Grows Once Again As New Signings Hit A Record High

Accenture (NYSE:ACN) reported its Q4 2017 results on September 28, posting 8% year-over-year growth in revenues to $9.1 billion. Both the Consulting and Outsourcing businesses reported growth in earnings, and the company reported record new bookings worth $10.1 billion for the quarter, reflecting a 0.5% foreign-currency impact compared with new bookings in the fourth quarter last year.

Consulting net revenues for the quarter were $4.93 billion, an increase of 7% year-over-year in U.S. dollars. For the year ending in August 2017, the company reported 5% growth in consulting revenues to $18.8 billion. Outsourcing net revenues were $4.22 billion, an increase of 9%. For the year ending in August 2017, the company reported 7% growth in outsourcing revenues to $16.1 billion.

Due to the solid growth, Accenture’s stock rallied by over 2%. The details of the earnings are below.

See our full analysis for Accenture

Consulting Revenues Post Growth Yet Again

The Consulting business accounts for around 55% of our price estimate for Accenture’s stock. Consulting revenues for the quarter were $4.93 billion, up 7%. Furthermore, the company’s momentum for new orders grew as it booked orders of $5.1 billion (or 50% of total new bookings) during the quarter. However, the book-to-bill ratio, the key metric that indicates the growth in new contracts, declined to 1.03x as the company reported growth in Consulting revenues. For FY2017, Consulting revenues grew by 5% to $18.8 billion.

While the new signings have been about in line with expectations, we expect the Consulting business to continue to deliver mid to low-single-digit growth in Q1 2018, as investments in high-growth areas continue to gain traction. Specific areas of higher growth – which include digital, cloud and security services – now account for more than $18 billion, or 52% 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 8% to $4.22 billion. Accenture reported strong demand for its Outsourcing services, with new bookings at $5 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 19% during the fourth quarter of the fiscal year 2017.

Order Book Signings Grow To Record High

Accenture reported new signings of $10.1 billion during Q4, which brought the total order backlog to $37.4 billion for the year 2017. New order signings grew by 12% compared to those in Q4 2016, reflecting the second-highest level of new bookings in Accenture’s history. Considering the historical book-to-bill ratio, we expect good revenue growth in the first quarter and the ensuing year. Additionally, we believe that the company will likely continue to add to revenue growth through acquisitions.

Guidance For FY18 and FYQ1

Accenture expects its net revenue to be in the range of $9.1 billion to $9.35 billion in fiscal Q1, a growth of 5-8% in local currency. For fiscal 2018, the company expects its revenues to grow by 5-8% in local currency. The company expects diluted EPS to be in the range of $6.36 to $6.6 for the year. Accenture expects its operating margin for the full fiscal year to be in the 15% range, an expansion of 10 to 30 basis points from the adjusted operating margin for fiscal 2017.

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