How good is Accenture (NYSE: ACN)? If Tuesday's blowout earnings report and higher guidance are any indication, as good as any stock on the market right now. Let's review.
Second-quarter adjusted earnings improved 27% to $0.47 per diluted share. That easily beat estimates, even after accounting for problem contracts with the U.K. National Health Service.
Revenue, meanwhile, also saw steady improvement. In U.S. dollars, consulting fees were up 15% year-over-year and outsourcing revenue rose 17%. Combined, Accenture's $5.16 billion in revenue was a 15% improvement over a year ago.
But the best part of this story was in the margins. Accenture improved gross and operating margin by nearly eight percentage points each. Net margin, meanwhile, expanded by almost six percentage points.
Here's why this matters. Technology outsourcing, while already a massive business that some say will account for more than $250 billion annually by the end of the decade, is a hotly contested market. Competitors include Infosys (Nasdaq: INFY), Wipro (NYSE: WIT), and EDS (NYSE: EDS), among others.
There's a good reason for this: Once an outsourcing deal is signed, consultants have years' worth of predictable revenue on which they can depend. Few things are more comforting to a consultant than predictable revenue.
But predictability sometimes comes with a cost: margin. Not so with pure consulting work. Intractable tech problems occur in spurts and demand pricey solutions. If Accenture is attracting higher margins, it probably means that more clients are recognizing its expertise as a problem solver.
And, if that's true, then higher margins could prove to be sustainable. Accenture signed a record $3.08 billion in quarterly consulting bookings in Q2.
Remember when the chinwags said tech was dead? Well, they were wrong. Again. For Accenture, that means even brighter days, and better earnings reports, are still likely to be ahead. And investors, rightly, have started to notice.
Get your clicks with related Foolishness:
Accenture and Microsoft are winning Inside Value picks. Click here to get 30 free days of access to all of the stocks that are helping advisor Philip Durell beat the market by nearly 7%. There's no obligation to subscribe.
Fool contributor Tim Beyers, who is ranked 1,328 out of more than 25,000 in our Motley Fool CAPS investor-intelligence database, was a consultant once. He doesn't miss those days. Tim didn't own shares in any of the companies mentioned in this article at the time of publication. The Motley Fool's disclosure policy wonders if anyone remembers when Accenture was known as Andersen Consulting.
Terms & Conditions
RSS Headlines
Fool UK