Accenture Says "Happy New Year!"

Shares of Motley Fool Inside Value recommendation Accenture (NYSE: ACN) surged in early Thursday trading. Fueling the takeoff was yesterday evening's news that Accenture started off its 2008 fiscal year in a big way -- beating both revenue and earnings expectations with a stick.

The multinational consulting/outsourcing firm parlayed an already large 19% increase in revenue (to $5.67 billion) into an earnings increase of 30%, to $0.60 per share. In each case, these numbers far exceeded what analysts had predicted.

Speaking of predictions, Accenture didn't quite do what I predicted earlier this week. Specifically, it didn't pull off any sort of spike in its profit margins. Rather, both gross and operating margins were essentially flat year over year, at about 30% and 13%, respectively. (On the other hand, with the company averaging closer to 28% and 12% over the past 12 months, these numbers were above-trend.)

Putting these numbers in context, we find Accenture growing less swiftly than Indian outsourcers like Wipro (NYSE: WIT), Satyam (NYSE: SAY), or Infosys (Nasdaq: INFY), and boasting margins that, while strong, don't measure up to the competition. Closer to home, however, Accenture is outperforming BearingPoint (NYSE: BE), EDS (NYSE: EDS), and IBM (NYSE: IBM) -- all of which are stuck in single-digit revenue growth mode -- and earning better margins than two out of those three (IBM still has a point or so lead over Accenture).

Fast forward
Getting back to Accenture specifically, how did the firm grow its profits so much faster than its revenue? Well, for one, the company's been buying back shares hand over fist. The diluted share count has dropped 4% since this time last year, giving each remaining share a correspondingly larger claim on the firm's net profits.

Expect that to continue, and with it, Accenture's good fortunes. CEO William Green noted that the firm was continuing to buy back shares, and in fact "added $3 billion in share repurchase authority." You should expect to see a concentration of profits among fewer and fewer shares in consequence.

Meanwhile, the business that makes all those profits is going swimmingly. Accenture boasted of "record net revenues across all five operating groups" last quarter. Yet it still managed to replace all its quarterly revenue and more. New business booked in the quarter totaled $5.9 billion. The way I read all that, Accenture is promising its shareholders (and hopefully Motley Fool Inside Value members who became shareholders on our recommendation) a very happy New Year in 2008.

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