It has been about a month since the last earnings report for Accenture (ACN). Shares have added about 0.4% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Accenture due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Accenture Q1 Earnings Beat Estimates
Accenture reported solid first-quarter fiscal 2020 results, wherein earnings and revenues surpassed the Zacks Consensus Estimate.
Earnings of $2.09 per share surpassed the consensus estimate by 4.5% and came ahead of the year-ago figure by 6.6%. The bottom line benefited from higher revenues and operating results, and higher non-operating income and lower share count, partially offset by higher effective tax rate. Net revenues of $11.36 billion outpaced the consensus mark by 1.9% and increased 7% year over year on a reported basis and 9% in terms of local currency. Net revenues came in line with the higher end of the guided range of $10.9-$11.2 billion.
Revenues in Detail
On the basis of type of work, Consulting revenues of $6.38 billion increased 7% year over year on a reported basis and 9% in terms of local currency. Outsourcing revenues of $4.98 billion increased 7% year over year on a reported basis and 9% in terms of local currency.
Segment-wise, Communications, Media & Technology revenues of $2.25 billion increased 5% year over year on a reported basis and 7% in terms of local currency. Financial Services revenues of $2.19 billion increased 3% year over year on a reported basis and 6% in terms of local currency. Health & Public Service revenues of $1.97 billion increased 12% year over year on a reported basis and 13% in terms of local currency. Products revenues of $3.22 billion increased 10% year over year on a reported basis and 12% in local currency. Resources revenues of $1.73 billion increased 5% year over year on a reported basis and 7% in terms of local currency. Geographically, revenues from North Americas of $5.29 billion increased 9% year over year on a reported basis as well as in terms of local currency. Revenues from Europe of $3.79 billion improved 2% year over year on a reported basis and increased 7% in terms of local currency. Revenues from Growth Markets of $2.28 billion increased 12% year over year on a reported basis and 13% in terms of local currency.
Accenture reported new bookings worth $10.3 billion. Consulting bookings and Outsourcing bookings totaled $6.0 billion and $4.3 billion, respectively.
Gross margin (gross profit as a percentage of net revenues) for the first quarter of fiscal 2020 increased 100 basis points (bps) to 32.1%. Operating income was $1.77 billion, up 8% year over year. Operating margin in the reported quarter expanded 20 bps to 15.6%.
Balance Sheet & Cash Flow
Accenture exited first-quarter fiscal 2020 with total cash and cash equivalents balance of $5.81 billion compared with $6.13 billion at the end of the prior quarter. Long-term debt was $15.9 million compared with $16.3 million at the end of the prior quarter. Cash provided by operating activities crossed $786.91 million in the reported quarter. Free cash flow came in at $692 million.
As mentioned earlier, Accenture has shifted its dividend payout policy from semi-annual to quarterly basis. On Nov 15, 2019, the company paid out a quarterly cash dividend of 80 cents per share for shareholders of record at the close of business on Oct 17, 2019. These cash dividend payouts totaled $508 million. The company has declared a quarterly cash dividend of 80 cents per share for shareholders of record at the close of business on Jan 16, 2020. This dividend will be paid out on Feb 14, 2020. In fiscal 2019, the company paid out semi-annual cash dividends of $1.46 per share.
In line with the policy of returning cash to its shareholders, Accenture repurchased 3.8 million shares for $729 million in the fiscal first quarter. The company had approximately 635 million total shares outstanding as of Nov 30, 2019.
For second-quarter fiscal 2020, Accenture expects revenues of $10.85-$11.15 billion, which indicates 5-8% growth in local currency. The assumption is inclusive of a negative foreign-exchange impact of 1%. Notably, the Zacks Consensus Estimate of $11.21 billion exceeds the current guided range marginally. Accenture provided its guidance for fiscal 2020. Management raised the EPS range to $7.66-$7.84 compared with the prior guided range of $7.62-$7.84. The current Zacks Consensus Estimate of $7.78 lies within the updated guidance. Revenues are expected to register 6-8% growth in terms of local currency compared with the prior guided growth rate of 5-8%. Operating margin for the fiscal year is expected between 14.7% and 14.9%, indicating an expansion of 10-30 bps from fiscal 2019. The company expects negative foreign exchange impact of 1% on its results in U.S. dollars. Operating cash flow is anticipated in the range of $6.35-$6.75 billion. Free cash flow is expected to be $5.7-$6.1 billion. Annual effective tax rate of 23.5-25.5% is expected.
How Have Estimates Been Moving Since Then?
Fresh estimates followed a downward path over the past two months.
At this time, Accenture has an average Growth Score of C, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Accenture has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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