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Accenture (ACN) Q3 Earnings Surpass Estimates, FY19 View Up

Zacks Equity Research

Accenture plc ACN reported impressive third-quarter fiscal 2019 results, wherein both earnings and revenues surpassed the Zacks Consensus Estimate.

Earnings of $1.93 per share surpassed the consensus estimate by 5 cents and came ahead of the year-ago figure by 14 cents. The bottom line benefited from higher revenues and operating results, lower effective tax rate, lower non-operating expense and lower share count. These were, however, partially offset by a higher income attributable to non-controlling interests.

Net revenues of $11.10 billion outpaced the consensus mark by $96.5 million and increased 4% year over year on a reported basis and 8.4% in terms of local currency. Net revenues came in line with the higher end of the guided range of $10.80-$11.10 billion.

So far this year, shares of Accenture have gained 30% compared with 25.6% rise of the industry it belongs and 15% increase of the Zacks S&P 500 composite.


Revenues in Detail

On the basis of type of work, Consulting revenues (56% of net revenues) of $6.24 billion increased 3% year over year on a reported basis and 7% in terms of local currency. Outsourcing revenues (44%) of $4.86 billion increased 5% year over year on a reported basis and 10% in terms of local currency.

Among the operating segments, Communications, Media & Technology revenues (20% of net revenues) of $2.25 billion increased 3% year over year on a reported basis and 7% in terms of local currency. Financial Services revenues (20%) of $2.20 billion decreased 2% year over year on a reported basis but increased 4% in terms of local currency. Health & Public Service revenues (16%) of $1.82 billion increased 4% year over year on a reported basis and 6% in terms of local currency. Products revenues (28%) of $3.08 billion increased 4% year over year on a reported basis and 8% in local currency. Resources revenues (16%) of $1.75 billion increased 13% year over year on a reported basis and 19% in terms of local currency.

Geographically, revenues from North Americas (46% of net revenues) of $5.15 billion increased 9% year over year on a reported basis as well as in terms of local currency. Revenues from Europe (34%) of $3.77 billion decreased 3% year over year on a reported basis but increased 5% in terms of local currency. Revenues from Growth Markets (20%) of $2.18 billion increased 5% year over year on a reported basis and 13% in terms of local currency.

Booking Trends

Accenture reported new bookings worth $10.6 billion. Consulting bookings and Outsourcing bookings totaled $6.0 billion and $4.6 billion, respectively.

Operating Results

Gross margin (gross profit as a percentage of net revenues) for the third quarter of fiscal 2019 increased 60 basis points (bps) to 31.8%. Operating income was $1.72 billion, up 5% year over year. Operating margin in the reported quarter expanded 20 bps to 15.5%.

Accenture PLC Price, Consensus and EPS Surprise

Balance Sheet & Cash Flow

Accenture exited third-quarter fiscal 2019 with total cash and cash equivalents balance of $4.77 billion compared with $4.46 billion at the end of the prior quarter. Long-term debt was $19.9 million compared with $19.8 million at the end of the prior quarter.

Cash provided by operating activities crossed $2.12 billion in the reported quarter. Free cash flow came in at $1.98 billion.

Dividend Payment

On May 15, 2019, Accenture paid a semi-annual cash dividend of $1.46 per share to shareholders of record at the close of business on Apr 11, 2019.

Combined with the semi-annual cash dividend of $1.46 per share paid on Nov 15, 2018, the total cash dividend payment for the fiscal year came in at $2.92 per share.

The company plans to pay dividends on a quarterly basis from the first quarter of fiscal 2020.

Share Repurchases

In line with the policy of returning cash to its shareholders, Accenture repurchased 2.8 million shares for $488 million in the fiscal third quarter. The company had approximately 638 million total shares outstanding as of May 31, 2019.

Guidance

Fourth-Quarter Fiscal 2019

For fourth-quarter fiscal 2019, Accenture expects revenues to be in the range 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 2%. Notably, the Zacks Consensus Estimate of $10.99 billion lies within the current guided range.

Fiscal 2019

Accenture updated its guidance for fiscal 2019. Management raised the EPS range to $7.28-$7.35 from 7.18-$7.32 anticipated earlier. The mid-point of the raised guidance ($7.32) is above the Zacks Consensus Estimate of $7.29 for the period. Revenues are expected to register 8-9% growth, in terms of local currency, compared with 6.5-8.5% growth rate as expected previously.

Operating margin for the fiscal year is still expected around 14.6%, indicating an expansion of 20 basis points from fiscal 2018.

The company continues to expect negative foreign-exchange impact of 3% on its results in U.S. dollars.

Operating cash flow is anticipated in the range of $5.85-$6.25 billion. Free cash flow is expected in the $5.2-$5.6 billion band. Annual effective tax rate is expected to be 22.5-23.5%.

Zacks Rank & Upcoming Releases

Accenture currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Investors interested in the broader Zacks Business Services sector are keenly awaiting second-quarter 2019 reports from key players like TransUnion TRU, Republic Services RSG and Waste Management WM. While TransUnion will release earnings on Jul 23, Republic Services and Waste Management will report on Jul 25.

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Click to get this free report TransUnion (TRU) : Free Stock Analysis Report Accenture PLC (ACN) : Free Stock Analysis Report Waste Management, Inc. (WM) : Free Stock Analysis Report Republic Services, Inc. (RSG) : Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research