Professional services giant Accenture (ACN 2.60%) reported third-quarter results last week. The provider of consulting and outsourcing services crushed its own revenue target, raised its full-year guidance goals, and provided more detail on its long-running strategy makeover.
Accenture's third-quarter results: The raw numbers
|
Metric |
Q2 2018 |
Q2 2017 |
Year-Over-Year Change |
|---|---|---|---|
|
Net revenue |
$10.31 billion |
$8.87 billion |
16% |
|
Net income attributable to Accenture |
$1.04 billion |
$669 million |
55% |
|
GAAP earnings per share (diluted) |
$1.60 |
$1.05 |
52% |
Data source: Accenture.
The company didn't provide any earnings guidance three months ago, but management did set up a revenue target at approximately $10 billion. The reported revenue was significantly higher than the top end of that guidance goal.
What happened with Accenture this quarter?
All five of Accenture's reportable business segments delivered solid year-over-year revenue growth in the third quarter. Communications, media, and technology led the way with a 22% sales boost. Health and public services trailed with a more modest 10% gain. Every division also expanded their segment-level operating profits.
In geographic terms, European revenues rose 22% over the year-ago period, while North America lagged at an 11% gain. The rest of the world, which Accenture collectively labels as "growth markets," landed in between at a 19% increase.
Free cash flows grew by $157 million, or 9.5%, landing at $1.81 billion. And 47% of these cash flows were returned to shareholders in the form of dividend checks, while another 24% was used to power a $437 million net buyback of Accenture's own shares.
Importantly, Accenture's chosen areas of focus continued to pull their weight. "The New" accounted for more than 60% of the company's total third-quarter sales, up from 50% a year earlier and 55% in the second quarter. These operations include buzzwords like cloud computing, digital services, and data security, giving Accenture a timely handle on strongly profitable business opportunities with a high-growth profile.
Image source: Getty Images.
What management had to say
Accenture CEO Pierre Nanterme provided more nuance to the company's strategic shift into the New during the earnings call with analysts.
Revenues in the New again grew at a very strong double-digit rate in the third quarter and accounted for about 60% of total revenues for the first time, highlighting that the New has now become the core of our business. ...
We started with some basic internet technology solutions, more on the [business-to-consumer]. Now, we're moving to look at it everything connected. If you look at this, that would be a big market in itself -- so, what we're calling the Internet of Things, but, everything connected.
Then, you move to the artificial intelligence at large. Everybody would believe we are more at the very beginning of this wave than anything else. Then, the blockchain. We took it the last three years and incubated it. Now, it's starting to pick up, and by the way, we have put our act together, we have made significant investments, and now, we're taking a position of leadership in this blockchain technology.
That said, Accenture is always evolving its definition of the New as well as improving the technology platforms behind these operations.
"It's important for all of you to understand that almost every year or every couple of years, we will always significantly improve, upgrade what we're calling the New to make sure we are always ahead of the curve and bringing innovation at the heart of our existing capabilities," Nanterme said.
Looking ahead
Accenture's management now expects full-year net revenue to increase by approximately 10% in local currencies, up from an 8% currency-adjusted target from the second-quarter report. GAAP earnings should land near $6.29 per share, down from the earlier target of $6.45 per share. The bottom-line targets include a $0.40 cost per share related to changing tax treatments in jurisdictions around the world, up from an expectation of $0.21 per share in the former guidance update. Excluding these tax quirks, the midpoint of Accenture's full-year earnings guidance increased from $6.65 to $6.69 per share.
To reach the updated full-year ambitions, Accenture aims for net revenue near $9.93 billion in the fourth quarter. GAAP earnings would have to stop in the neighborhood of $1.93 per share, a 30% jump above the $1.48 per share Accenture earned in the fourth quarter of 2017.
