7 Takeaways From Accenture Earnings

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

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.

Stocks for a wealthy retirement
It's no secret that investors tend to be impatient with the market, but the best investment strategy is to buy shares in solid businesses and keep them for the long term. In the special free report, "3 Stocks That Will Help You Retire Rich," The Motley Fool shares investment ideas and strategies that could help you build wealth for years to come. Click here to grab your free copy today.

Read/Post Comments (0) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2772147, ~/Articles/ArticleHandler.aspx, 9/30/2016 7:52:38 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 10 hours ago Sponsored by:
DOW 18,143.45 -195.79 -1.07%
S&P 500 2,151.13 -20.24 -0.93%
NASD 5,269.15 -49.39 -0.93%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/29/2016 4:00 PM
ACN $121.64 Up +4.99 +4.28%
Accenture CAPS Rating: ****
IBM $158.11 Down -0.18 -0.11%
IBM CAPS Rating: ****