Source: Flickr/Michael Gray.
Consulting specialist Accenture (ACN 1.90%) has earned a solid reputation for its services, with particular emphasis on helping clients use technology more effectively and providing outsourcing services for its customers. Coming into Thursday morning's fiscal third-quarter financial report, shareholders were optimistic about the company's long-term prospects, and the earnings results generally supported a bullish view of Accenture's potential. Let's look at how Accenture did last quarter and why investors are pleased about what it said.
Accenture grows, boosts guidance
Accenture's fiscal third-quarter results were generally stronger than most investors had expected. Net revenue before reimbursements climbed slightly to $7.77 billion, defying the consensus projection for a 2.5% drop. On the bottom line, net income attributable to Accenture fell about 3% to $793.7 million; however, after taking out the effect of a one-time pension settlement charge, earnings of $1.30 per share were $0.07 higher than the consensus forecast.
Looking more closely at Accenture's various business units reveals strong performance across the business as long as you exclude the impact of currency-related fluctuations. Both consulting net revenue and outsourcing net revenue were little changed in dollar terms compared to the same period last year, but they both climbed by double-digit percentages in local currencies. The strongest results came from Accenture's communications, media, and technology segment, which posted a 6% sales gain even after accounting for 11 percentage points of downward pressure due to the strong U.S. dollar. The health and public service division also gained a solid 5% on a dollar basis and 10% in local currency. By contrast, the financial services, products, and resources segments all posted declines in dollar revenue, even though their gains in local-currency terms ranged from 6% to 10%.
Similar trends showed up in Accenture's geographical segments. In North America, sales climbed 11% to $3.64 billion, but European sales fell 10% in dollar terms, and the remainder of its international operations posted a 2% drop in revenue. Again, though, in local currency terms, all three regions realized solid gains, with growth markets leading the way with a 13% jump.
On the whole, Accenture was pleased with its results. As CEO Pierre Nanterme noted in the company's earnings press release, "We are clearly benefiting from our recent investments across the different dimensions of our business in digital services." Nanterme also said he sees chances to expand its reach, as "we remain focused on further differentiating our capabilities and capturing new growth opportunities."
Accenture's future looks brighter
Accenture's forward guidance also reflected a more favorable outlook. For the fiscal fourth quarter, Accenture anticipates bringing in between $7.45 billion and $7.7 billion of net revenue, with foreign exchange issues again costing the company about 10 percentage points of sales. For the full 2015 fiscal year, though, Accenture boosted its guidance, forecasting an improvement of half a percentage point on the foreign-exchange front and also looking at local-currency growth of about 9% to 10%, up from an 8% to 10% range.
The impact on earnings should be positive as well. Accenture said it expects full-year GAAP earnings of $4.67 to $4.72 per share, up from a prior range of $4.61 to $4.71 per share. Despite a slight drop in projected operating cash flow, Accenture didn't change its free cash flow projections, and it still expects to spend $3.8 billion on dividends and stock buybacks during the year. Accenture has already spent $1.35 billion during the fiscal year on dividends, and third-quarter buyback activity amounted to 5.6 million shares. The company still has $3.2 billion in outstanding buyback authorization capacity, opening the door to more aggressive repurchases in the future.
Accenture stock responded favorably to the news, opening higher by about 2% to set a record high following the announcement. With so much positive momentum and so much need for its increasingly diverse set of services, Accenture has significant potential to capture a growing business and to further establish itself as a dominant market leader in the industry.
