What Drove Accenture’s Fiscal Q1 Results?

by Trefis Team
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Accenture‘s (NYSE:ACN) reported a solid set of Q1 results on December 20, beating market expectations on revenue and EPS. The company’s business philosophy to stay clear of commodity businesses, and hedging its focus areas to build resilience to economic upheavals, has been lending a sustainable competitive advantage to Accenture.

We currently have a price estimate of $165 per share for Accenture, which is around 15% higher than the current market price. Our interactive dashboard on Accenture’s Price Estimate outlines our forecasts and estimates for the company. You can modify any of the key drivers to visualize the impact of changes on its valuation.

 

Accenture’s Q1 revenues grew to $10.5 billion (+7% y-o-y in $ terms, +9.5% y-o-y in local currency) and diluted EPS grew to $1.96 (+$0.17 y-o-y). Q1 revenue growth was strong across all segments, except the below segments where it was more modest:

  • Health and Public Services: While the segment saw growth in non-U.S. geographies, in the U.S. business was impacted by federal contracts winding down, a cyclical phenomenon. This led to Q1 revenues growing to $1.75 billion (+4% y-o-y in $ terms, +5% y-o-y in local currency).
  • Financial Services: Accenture expects to see growth coming in the second half of the fiscal year, with management confidence stemming from committed bookings. For Q1, segment revenues came in at $2.12 billion (-1% y-o-y in $ terms, +1% y-o-y in local currency).

The company notes that it has been intentionally disrupting its declining legacy business while focusing on growing ‘the New’, which has allowed for better contract profitability, and in turn has been reflecting in the gross margin improvement (+10 bps y-o-y).

Despite macro and cross-border trade disturbances, the company’s business appears to be fairly durable. Accenture seems to be benefiting from increased ERP deployments across the “old economy” sectors of gold mining, chemical, oil and gas, and utilities. The company also noted that, owing to cross-border trade disturbances, it has witnessed strong demand as clients try to manage their increasingly complex supply chains. Further, the rise of digital (~50% of Accenture’s business) and cloud solutions have further positioned Accenture at the forefront on business transformations, limiting the company’s downside in case of macro-driven weakness.

Per management’s guidance, fiscal Q2 revenue is expected to be in the range of $10.1-$10.4 billion (+6-9% y-o-y), with FX likely to have a negative impact of 4%. Meanwhile, the full-year FX impact has been forecast at -3%, with revenue growth guided to come in between 6% and 8%. Full year EPS is expected to grow 4% to 8% to $7.01-7.25.

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