Accentureplc (ACN) reported fourth-quarter fiscal 2014 earnings per share of $1.08, which missed the Zacks Consensus Estimate of $1.10. On a year-over-year basis, earnings increased 7% from $1.01 per share. The year-over-year increase was attributed to higher revenues, higher non-operating income and lower share count.
Revenues and Bookings
Accenture’s fourth-quarter net revenue not only increased 9.7% year over year to $7.78 billion but also surpassed the Zacks Consensus Estimate of $7.64 billion. Net revenue also beat management’s guided range of $7.45 to $7.70 billion, primarily aided by a 15% increase in Outsourcing revenues ($3.76 billion) and 6% increase in Consulting revenues ($4.02 billion).
Among the operating segments, Communications, Media & Technology revenues and revenues from Products were up 14% each on a year-over-year basis to $1.58 billion and $1.93 billion, respectively. Revenues from Health & Public Services and Financial Services increased 10% each to $1.29 billion and $1.67 billion, respectively, on a year-over-year basis. Revenues from Resources remained flat from the year-ago quarter at $1.29 billion.
Geographically, revenues from the Americas, and Europe, the Middle East and Africa (EMEA) increased 9% and 13%, respectively, while revenues from the Asia Pacific region were up 3% from the year-ago quarter.
Accenture reported new bookings of $8.3 billion during the quarter, which was positively impacted by foreign currency fluctuations. Consulting bookings and Outsourcing bookings for the quarter amounted to $3.9 billion and $4.4 billion, respectively.
Operating Results
Fourth-quarter gross margin decreased 150 basis points (bps) from the year-ago quarter to 31.7%, primarily due to higher cost of services.
Operating expenses increased 1.7% from the year-ago quarter to $1.39 million, primarily due to higher selling, general & administrative expenses. As a percentage of net revenue, operating expenses contracted 140 bps to 17.9% from the year-ago quarter.
Accenture’s operating income came in at $1.08 billion or 13.9% of net revenue which increased from $983.5 million or 13.9% of revenues reported in the year-ago quarter. Accenture reported $744.7 million in net income or $1.08 per share.
Balance Sheet & Cash Flow
Accenture exited the quarter with total cash balance of $4.92 billion versus $4.05 billion in the preceding quarter. Accenture’s long-term debt balance at the end of the fourth quarter was $26.4 million.
Operating cash flow was $1.65 billion in the reported quarter while free cash flow was $1.5 billion.
Share Repurchase and Dividend
The company repurchased 8.2 million shares for $658 million during the fourth quarter. During the reported quarter, Accenture did not pay any dividend during the quarter. Nonetheless, the company increased semi-annual cash dividend by 10%.
Guidance
For the first quarter of 2015, Accenture expects net revenue between $7.55 billion and $7.80 billion. The Zacks Consensus Estimate is pegged at $7.76 billion. The company did not provide any earnings per share guidance.
Accenture provided its guidance for fiscal 2015. The company expects net revenue to grow in the range of 4% to 7% in local currency. Accenture expects earnings per share in the range of $4.74–$4.88. The Zacks Consensus Estimate is pegged at $4.91 per share .The company expects new bookings in the range of $34–$36 billion.
For fiscal 2015, the company’s operating margins are projected in the range of 14.4% to 14.6%. Operating cash flow is expected in the range of $3.95–$3.4.25 billion, while free cash flow is likely to be within $3.5–$3.8 billion.
Recommendation
Accenture delivered mixed fourth-quarter results, wherein the top line surpassed the Zacks Consensus Estimate but the bottom line fell short of the consensus mark. Nonetheless, revenues increased on a year-over-year basis reflecting an increased focus on the Outsourcing business, new bookings and continuous return of shareholders value. Moreover, the company provided better-than-expected revenue guidance for the upcoming quarter. Another encouraging factor was the revenue increase in its Consulting business.
Accenture’s solid performance across insurance, banking and healthcare segments reflects strong demand for its services, boosting long-term growth prospects. However, increasing competition from Cognizant Technology Solutions (CTSH) and International Business Machines (IBM), a strained spending environment and Accenture’s broad European exposure may temper its growth prospects to some extent.
Currently, Accenture has a Zacks Rank #3 (Hold). Investors may also consider Micron Technology (MU) with a Zacks Rank #1 (Strong Buy).
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