Please ensure Javascript is enabled for purposes of website accessibility

Accenture Won't Stop Growing in the Coronavirus Era

By Anders Bylund - Mar 19, 2020 at 12:07PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The business consultant also posted record-level order bookings, setting it up for renewed growth once the virus crisis has run its course.

Business consulting and outsourcing veteran Accenture (ACN 1.11%) reported earnings early Thursday morning. The report, covering the second quarter of fiscal year 2020, exceeded Wall Street's expectations, and management painted a rosy picture of Accenture's long-term prospects. The next couple of quarters will be rocky, but the company is set up for impressive results after the COVID-19 pandemic.

Accenture's second-quarter results by the numbers

Metric

Q2 2020

Q2 2019

Change

Analyst Consensus

Revenue

$11.1 billion

$10.5 billion

6.6%

$11.1 billion

GAAP net income attributable to Accenture

$1.23 billion

$1.12 billion

9.8%

N/A

GAAP earnings per share (diluted)

$1.91

$1.73

10.4%

$1.72

Data source: Accenture. GAAP = generally accepted accounting principles.

Accenture posted positive year-over-year revenue growth in each of its six operating groups. The gains ranged from a 2% increase in financial services to a 14% boost to the health and public service division.

The double-digit spike in health and public service sales was not directly related to the novel coronavirus outbreak. The real driver here was a double-digit increase in public service sales as the federal government stepped up both its outsourcing and consulting orders.

Here's where it gets interesting. Accenture posted new order bookings of $14.2 billion in the second quarter, a record performance on both the consulting and outsourcing sides of the house. New bookings stopped at $10.3 billion in the first quarter and $11.8 billion in the year-ago quarter, so this is an impressive spike. At the same time, the company scaled back its full-year revenue growth guidance from 7% to 4.5%, reflecting the expected business impact of the coronavirus. Third-quarter sales should land near $11.0 billion, right in line with the previous year's third-quarter performance.

A woman on a couch, wearing a headset and using a laptop, smiles at the camera and gives a thumbs-up sign

How business gets done when the office is closed. Image source: Getty Images.

Why the next quarter won't benefit from those massive order bookings

How can the near-term revenue trend look soft even though Accenture booked a record volume of new orders? In short, the new business consists mostly of long-term contracts, and some of them won't even take effect until later this year. Business is relatively slow everywhere while the world deals with virus containment efforts.

"Our business is going to evolve differently for the next two quarters for a whole host of reasons," CEO Julie Sweet said on the second-quarter earnings call.

There's an upside to all of this for Accenture. The company plays an active role in helping other businesses deal with the virus outbreak's effects on day-to-day operations. For example, Sweet highlighted a recent deal where a customer wanted to implement online collaboration and communications tools for more than 60,000 employees in five days. Accenture partnered with Microsoft (MSFT -0.23%) to get the entire workforce onto the Microsoft Teams collaboration platform, completing that order on schedule.

That's just one unusually large example of a broad trend as remote work over digital links becomes the new normal in this coronavirus era.

What doesn't kill you makes a stronger investment

Accenture's report serves as a solid reminder that life will go on beyond the coronavirus scare. This global IT services giant expects a slight slowdown followed by booming revenue in fiscal year 2021 and beyond, as the glut of new orders start to convert into cash-generating revenue.

"The fundamentals of our business are strong, and we plan to emerge [from the health crisis] even stronger," Sweet said.

That might sound like empty executive spin on a dire situation, but I actually agree with Sweet's conclusion. Her words are backed by that sweet, sweet influx of new orders, and even the direct coronavirus slowdown over the next couple of quarters looks manageable. Accenture's shares have fallen 29% over the last month, in lockstep with the S&P 500. This report suggests that the price cuts to this particular stock went too far. The coronavirus has made a deep-discount value investment out of Accenture.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Accenture plc Stock Quote
Accenture plc
ACN
$276.65 (1.11%) $3.04
Microsoft Corporation Stock Quote
Microsoft Corporation
MSFT
$252.56 (-0.23%) $0.58

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
331%
 
S&P 500 Returns
115%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/20/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.