The market didn't like Accenture's (NYSE:ACN) second-quarter earnings, sending shares down 5% after the company's seventh straight quarter of weak sales growth. But according to nearly every other metric that matters, Accenture actually posted solid earnings.
1. Weak revenue growth
Last quarter, revenue grew by a tepid 2%. This time around, it increased 1% in U.S. dollars and 3% in local currency. That's downright weak.
During the past 10 years, the company's revenue has grown nearly 9% annually, but apparently, Accenture has now hit a speed bump. Clearly, something in the enterprise technology market is halting growth across the board. Like Accenture, IBM has recorded seven straight quarters of negative revenue growth.
2. Solid operating statistics
Despite lousy growth, Accenture still seems to be operating efficiently. The company depends on its ability to hire new employees and put them to work on projects. For that reason, investors should closely track utilization and attrition, which measure the productivity of the workforce along with Accenture's ability to retain its employees.
This quarter, utilization was 87%, and attrition was 12%, both well within acceptable ranges. And operating margins, which are a reasonable proxy for the company's pricing discipline, remained basically steady at 13.3%. Management mentioned seeing some pricing pressure in the market, but it nonetheless looks like the company was able to maintain its prices and profitability.
3. Outstanding bookings
Bookings are an important indicator of future revenue for Accenture, so it helps to compare new bookings to revenue in order to calculate a book-to-bill ratio. If that ratio exceeds one, it's a loose indicator of future growth. This quarter, the book-to-bill ratio was a very strong 1.4, boding well for the future.
4. Cash is still flowing to shareholders
Accenture generates plenty of excess cash that isn't needed to fund its operations, and the company has a long history of returning that cash to shareholders. Management affirmed its $0.93-per-share semi-annual dividend, putting the yield at 2.4%. In the past two quarters, Accenture also spent $1.5 billion to repurchase 18.9 million shares -- nearly 3% of its outstanding shares.
5. Improved guidance
Management actually improved its guidance, upping the low end of its estimates. For fiscal 2014, revenue growth is expected to be 3% to 6%, and the company expects to earn $4.50 to $4.62 per diluted share. That puts the shares around 17 times fiscal 2014 earnings -- not expensive for such a high-quality company, especially if it can resume growth.
Foolish bottom line
In short, Accenture is doing well on every metric except sales growth. Will the company return to historic levels of growth (i.e., 5% or greater), or do the past two years suggest that the company has hit a plateau? If growth resumes, Accenture looks like a market beater at today's prices. But if the company can't grow faster than 1% to 2%, it's likely to be a middling investment.
Only time will answer that question, but I believe Accenture is likely to resume growth at higher levels. The company's market, enterprise technology, seems stalled, but that should be temporary. Accenture continues to offer a compelling value proposition for its clients, and the reported new bookings indicate it still has future growth in store -- just not necessarily immediately. For now, Foolish Accenture investors will need to be patient.