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Accenture plc Dives Deeper Into "The New"

By Anders Bylund - Dec 21, 2017 at 7:37PM

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High-growth operations accounted for 55% of the consulting and outsourcing company's first-quarter sales.

Professional-services titan Accenture (ACN -0.65%) reported earnings early Thursday morning, covering the first quarter of fiscal 2018. The company crushed its own revenue target and raised its full-year guidance for both sales and earnings.

Accenture's first-quarter results: The raw numbers

Metric

Q1 2018

Q1 2017

Year-Over-Year Change

Net revenue

$9.52 billion

$8.52 billion

12%

Net income attributable to Accenture

$1.12 billion

$1.00 billion

12%

GAAP earnings per share (diluted)

$1.79

$1.58

13%

Data source: Accenture.

What happened with Accenture this quarter?

  • Accenture's big bet on cloud computing, data security, and digital services paid off in the first quarter. Management is reluctant to share firm results for this bundle of high-growth operations, known as "The New," but they added up to 55% of Accenture's total sales in the first quarter. Digital service revenues have nearly tripled in four years.
  • The company recorded 17% higher sale in Europe, year over year. Developing growth markets boosted their sales by 13%, while North America lagged behind at an 8% rate of annual growth.
  • Clients in the financial-services sector came knocking with a 14% order increase, leading the way among Accenture's five operating divisions. On the other side of that stack, sales growth in the health and public services industry stopped at 9%.
  • Operating margin held steady overall, with a small gain in the media sector and some sluggishness in the natural-resources division.

What management had to say

Two young profssionals having a business conversation.

Image source: Getty Images.

"Our growth strategy is clearly resonating with our clients, and we are very well positioned to continue gaining market share," said Accenture CEO Pierre Nanterme in a prepared statement.

In a conference call with analysts, he dug deeper into that optimistic outlook.

"The digital capabilities we've built, along with our highly differentiated talent in 'The New,' are absolutely key to the successful execution of our strategy," Nanterme said, according to a transcript prepared by Seeking Alpha. "That is why I am pleased we continue [to] receive recognition by industry analysts in key areas ranging from the strength of our execution capabilities in digital strategy and consulting to our digital experience services in design, content, and co-innovation, and for our overall market leadership in digital services."

CFO David Rowland chimed in on how "The New" represents a tectonic shift in the modern business world.

"I mean, literally, every industry, every geographic market, you see a level of rotation to The New that is, let's say, in the range of 50% or higher and 55% overall," Rowland said. "And I think that that's important for a number of reasons, not the least of which is that supports an essential element of our strategy, which is to create durability and resiliency in our revenue."

Looking ahead

Accenture's management expects the prevailing currency-exchange tailwind to lift sales and profit by 4.5% in the second quarter. Net revenue should land near $9.3 billion, which would extend the current 12% year-over-year sales growth trend.

The midpoint of Accenture's full-year earnings target was nudged 1.4% higher, landing at $6.57 per share. Overall revenue growth guidance in local currency ticked up from 6.5% to 7%. Expectations for free cash flows held steady at approximately $4.55 billion.

Anders Bylund has no position in any of the stocks mentioned. The Motley Fool recommends Accenture. The Motley Fool has a disclosure policy.

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