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Accenture Plc Beats the Street on Massive Digital Growth

By Anders Bylund - Sep 24, 2015 at 4:27PM

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Digital growth, generous buybacks, and strong execution across the board helped the consulting company beat estimates in Q4. Next up: soft Q1 sales and 2016 profits.

Source: Accenture.

Technology consulting and outsourcing giant Accenture (ACN 3.68%) reported results for the fourth quarter of fiscal year 2015 on Thursday morning. Beating analyst estimates but offering a less exciting view of future reporting periods, the tech-focused Arthur Andersen spinoff saw shares sink as much as 2.2% in the morning session. At midday, the stock recovered to a roughly breakeven overnight return while all the major market indexes had fallen 1% or more.

In the fourth quarter, Accenture's sales rose 1% year over year to $7.9 billion. Backing out currency exchange effects, adjusted revenues would have jumped 12%. Earnings increased 6%, landing at $1.15 per diluted share. The profit boost rested mostly on a lower effective tax rate, with smaller assists from share buybacks and improved operating results.

Analysts would have settled for earnings of $1.11 per share on roughly $7.7 billion in sales. Accenture left both of these targets comfortably behind.

Sales were particularly strong in the health and public service and communications and technology departments, held back by lower orders in the natural resources division. Geographically speaking, all three of Accenture's reportable markets delivered double-digit sales growth when counted in local currencies. The rising dollar reduced Europe and growth markets to modest decreases, leaving North America to carry the revenue torch.

Looking ahead, Accenture's management sees first-quarter sales stopping at roughly $7.8 billion, an 8% annual increase in local currency. The current analyst view calls for something like $8.1 billion.

Further out, sales for the next fiscal year should improve by roughly 7%, not counting currency exchange swings. Earnings should land near $5.17 per diluted share. The revenue target sits slightly ahead of current analyst projections, but the Street was hoping for a slightly larger bottom-line haul next year.

Accenture CEO and Chairman Pierre Nanterme. Source: Accenture.

"The focused investments we are making in the high-growth areas of our business are clearly differentiating Accenture in the marketplace and contributing to our strong performance, especially in digital services," said Accenture CEO Pierre Nanterme in a press statement.

Indeed, digital service sales increased 35% in 2015, adding up to full-year revenues of more than $7 billion. Management was not expecting that much interest in this particular service category, which makes digital a clear driver of Accenture's surprising growth figures.

Keep an eye on Accenture's digital business, dear investor. This is where the rubber is meeting the road right now.

Digital is Accenture's preferred shorthand for a combination of big data and the Internet of Things, rolled into Accenture's portfolio of consulting services. The category already accounts for nearly one-quarter of the company's annual sales, on a skyrocketing growth trajectory.

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