7 Takeaways From Accenture Earnings

The following article is exclusive content from The Motley Fool. While this is typically paid content, we're bringing it to you free because we think it's especially pertinent to your ability to invest wisely. Technology services provider Accenture  (NYSE: ACN  ) has been discussed at length on our newsletter discussion boards, but the key to investing is often found in examining the details. Below you'll hear from one of our newsletter analysts, who provides his take on the highlights of Accenture's recent earnings release.

Accenture's earnings today beat analyst expectations for both revenue and earnings per share. Analysts were expecting $7.25 billion in revenue, and $1.09 in earnings per share. The company reported $7.4 billion in revenue, and $1.15 in earnings per share -- in other words, a solid beat. Shares jumped up 5% on the news. But, those are only the headline numbers for the quarter. Long-term investors wisely look beyond the headlines, which is why I've written up my seven key takeaways from this quarter.

1. Growth was expectedly tepid
Revenue increased 2%, and earnings per share increased 8%. That's certainly nothing to be proud of. Typically, I'd like to see Accenture reporting revenue growth of 5% to 10%, along with double-digit earnings-per-share growth. However, given the weak IT services environment, these were acceptable results. It's certainly better than IBM  (NYSE: IBM  ) , which has reported six straight quarters of revenue declines.

2. Operating margins remain high
Gross and operating margins both improved, and the company is still solidly profitable. Operating margin for the quarter was 15%, and net margin was 10%. On its own, that's impressive. Aswath Damodaran of NYU-Stern tracks data on 6,177 firms, and the average net margin is 8%. So Accenture is well above average. And, given the weak environment for IT spending, it's impressive that Accenture was able to improve margins. It's a testament to the company's strong competitive position, and management's financial discipline.

3. New bookings were very strong
New bookings in the quarter were $8.7 billion. Bookings are an important indicator of future revenue for Accenture, so I monitor them closely. Specifically, I like comparing new bookings to revenue to come up with a book-to-bill ratio. If that ratio exceeds one, it's a loose indicator of future growth. This quarter, the book-to-bill ratio was 1.2, which is very strong.

4. Utilization and attrition remain solid
Accenture depends on its ability to hire new employees and put them to work on projects. For that reason, I also track utilization and attrition, which measure the productivity of the workforce along with Accenture's ability to retain its employees. This quarter, utilization was 87% and attrition was 11%, which are both well within my acceptable range.

5. Healthy returns of cash to shareholders
One of the key tenets of my investment thesis in Accenture is that it generates healthy amounts of cash, which it dutifully returns to shareholders via dividends and repurchases. On November 15, the company upped its semi-annual dividend by $0.12 per share. That's a 15% increase over the last dividend in March. In addition, the company did a hefty share repurchase during the quarter, buying back $722 million in stock. That's over 1% of the market capitalization, which is a pretty serious buyback for a single quarter.

6. Balance sheet is still flush with cash
Accenture's cash balance fell during the quarter by more than $1 billion, but the company still has a very strong balance sheet. It has $4.5 billion in cash (or about 8% of its market cap), and it has virtually no debt.

7. The outlook for the full year improved slightly
Management confirmed the company's previous guidance for 2014 revenue growth of 2% to 6%, but management slightly raised earnings per share guidance (largely due to improved foreign exchange effects). That alone is nothing to get excited about, but management did offer some comforting assurances about profitability, cash generation, and cash returns to shareholders. According to management, Accenture will generate solid operating margins in excess of 14%, produce over $3.2 billion in free cash flow, and return at least $3.7 billion to shareholders via dividends and repurchases.

Foolish bottom line
Admittedly, it's hard to get really excited about this quarter's relatively weak sales growth. But if you set aside sales growth, everything about the business seems to be going well. Margins, bookings, utilization, and attrition all look solid. The balance sheet is clean, and the company plans to continue rewarding shareholders. Ultimately, sales growth should improve over the coming years. Meanwhile, I'm happy to hold this well-managed, cash-generating business at the current valuation.

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