Why Is Accenture (ACN) Up 7.6% Since Last Earnings Report?
A month has gone by since the last earnings report for Accenture (ACN). Shares have added about 7.6% in that time frame, outperforming 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 its most recent earnings report in order to get a better handle on the important drivers.
Accenture Q3 Earnings Beat Estimates, FY19
Accenturereported 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.
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%.
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
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%. Accenture updated its guidance for fiscal 2019. Management raised the EPS range to $7.28-$7.35 from 7.18-$7.32 anticipated earlier. 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%.
How Have Estimates Been Moving Since Then?
Estimates review followed a downward path over the past two months.
VGM Scores
Currently, Accenture has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
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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