Accenture plc ACN reported first quarter fiscal 2016 earnings per share of $1.28, which missed the Zacks Consensus Estimate of $1.31 per share. Also, on a year-over-year basis, earnings decreased 1% from $1.29 per share. The year-over-year decrease was primarily due to the negative impact of a higher tax rate.
Revenues and Bookings
Accenture’s first quarter net revenue not only increased 1.5% year over year to $8.013 billion but also surpassed the Zacks Consensus Estimate of $7.896 billion. In local currency terms, revenues increased 10% year over year. Net revenue also came ahead of management’s guided range of $7.70 billion and $7.95 billion, primarily aided by a 6% increase in Consulting revenues ($4.35 billion), which more than offset a 4% decline in Outsourcing revenues ($3.67 billion). It is worth mentioning that Consulting revenues increased 15% in local currency whereas Outsourcing revenues increased 5% in local currency.
Among the operating segments, Communications, Media & Technology revenues were up 1% on a year-over-year basis to $1.60 billion. Revenues from Health & Public Services and Financial Services increased 4% and 2% year over year to $1.42 billion and $1.75 billion, respectively. Revenues from Products also increased 3% on a year-over-year basis and came in at $1.99 billion. Resources, however, decreased 4% on a year-over-year basis to $1.25 billion during the quarter.
Geographically, revenues from the North Americas increased 9% on a year-over-year basis, while revenues from Europe and Growth Markets (Asia Pacific, Latin America, Africa, the Middle East, Russia and Turkey) were down 1% and 12%, respectively, from the year-ago quarter.
Accenture reported new bookings of $7.7 billion during the quarter, which were negatively impacted by foreign currency fluctuations. Consulting bookings and Outsourcing bookings for the quarter amounted to $4.4 billion and $3.3 billion, respectively.
Operating Results
First quarter gross margin decreased 20 basis points (bps) on a year-over-year basis and came in at 32%, primarily due to higher cost of services.
Combined sales and marketing expenses and general and administrative costs decreased 0.8% from the year-ago quarter to $1.34 billion. As a percentage of net revenue, these expenses were down 40 bps on a year-over-year basis and came in at 16.7%.
Accenture’s operating income came in at $1.22 billion or 15.2% of net revenue compared with $1.19 billion or 15% of revenues reported in the year-ago quarter. Accenture reported $858.5 million in net income or $1.28 per share.
Balance Sheet & Cash Flow
Accenture exited the quarter with total cash balance of $3.08 billion compared with $4.36 billion in the preceding quarter. Accenture’s long-term debt balance at the end of the first quarter was $25.8 million.
Operating cash flow was $611.3 million in the reported quarter while free cash flow was $517 million.
Share Repurchase and Dividend
In line with its policy of returning cash to shareholders, Accenture repurchased 6.5 million shares for $658 million during the first quarter. The company increased its semi-annual cash dividend by 8% to $1.10 per share during the quarter.
Guidance
For the second quarter of fiscal 2016, Accenture expects net revenue between $7.50 billion and $7.75 billion (mid-point $7.63 billion). The Zacks Consensus Estimate is pegged at $7.66 billion. The company did not provide any earnings per share guidance.
Accenture updated its guidance for fiscal 2016. The company now expects net revenue to grow in the range of 6% to 9% in local currency (previously 5% to 8%). Accenture reiterated its earnings guidance per share in the range of $5.09–$5.24 (mid-point $5.17 per share). The Zacks Consensus Estimate is pegged at $5.21 per share.
For fiscal 2016, the company reiterated its operating margin (in the range of 14.6% to 14.8%), operating cash flow ($4.1 billion to $4.4 billion), free cash flow ($3.6 billion to $3.9 billion) and effective tax rate (25% to 26%) guidance.
Our Take
Accenture delivered mixed first quarter fiscal 2016 results. While the bottom line missed the Zacks Consensus Estimate, the top line surpassed the same. Revenues increased on a year-over-year basis, reflecting increased focus on the Consulting business, new bookings and continuous return of shareholders’ value. However, the company provided a not-so-encouraging second quarter fiscal 2016 revenue guidance and fiscal 2016 earnings outlook.
Nonetheless, Accenture’s solid performance across insurance, banking and health care segments reflects strong demand for its services, which will boost its long-term growth prospects.
However, increasing competition from Cognizant Technology Solutions CTSH and International Business Machines Corporation IBM, a strained spending environment and Accenture’s broad European exposure may temper its growth to some extent.
Accenture has a Zacks Rank #3 (Hold). Investors may consider VASCO Data Security International Inc. VDSI, which sports a Zacks Rank #1 (Strong Buy).
(We are reissuing this article to correct a mistake. The original article, issued on Dec 17, 2015, should no longer be relied upon).
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