Shares of Accenture plc ACN went up more than 6% on Mar 24, 2016, after the company reported better-than-expected second quarter fiscal 2016 results. Also, the company provided an encouraging third quarter and fiscal 2016 revenue guidance, which positively impacted the share price.
The company reported second quarter fiscal 2016 earnings per share of $1.34, which beat the Zacks Consensus Estimate of $1.18 per share. On a year-over-year basis, earnings increased 92.6% from $1.08 per share. The year-over-year increase was primarily due to higher revenues, lower tax rate and share count.
Revenues and Bookings
Accenture’s second quarter net revenue not only increased 6% year over year to $7.946 billion but also surpassed the Zacks Consensus Estimate of $7.725 billion. In local currency terms, revenues increased 12% year over year. Net revenue also came ahead of management’s guided range of $7.50 billion and $7.75 billion, primarily aided by a 6% increase in Consulting revenues ($4.29 billion), whereas Outsourcing revenues were flat on a year over year basis ($3.65 billion). It is worth mentioning that Consulting revenues increased 18% in local currency whereas Outsourcing revenues increased 6% in local currency.
Among the operating segments, Communications, Media & Technology revenues were up 6% on a year-over-year basis to $1.61 billion. Revenues from Health & Public Services and Financial Services increased 12% and 6% year over year to $1.48 billion and $1.68 billion, respectively. Revenues from Products also increased 8% on a year-over-year basis and came in at $1.99 billion. Resources, however, decreased 3% on a year-over-year basis to $1.17 billion during the quarter.
Geographically, revenues from the North Americas and Europe increased 11% and 5% on a year-over-year basis, respectively. Revenues from Growth Markets (Asia Pacific, Latin America, Africa, the Middle East, Russia and Turkey) were down 4% from the year-ago quarter.
Accenture reported new bookings of $9.5 billion during the quarter, which were negatively impacted by foreign currency fluctuations. Consulting bookings and Outsourcing bookings for the quarter amounted to $5 billion and $4.5 billion, respectively.
Operating Results
Second quarter gross margin decreased 10 basis points (bps) on a year-over-year basis and came in at 29.8%, primarily due to higher cost of services.
Combined sales and marketing expenses and general and administrative costs increased 4.9% from the year-ago quarter to $1.28 billion. However, as a percentage of net revenue, these expenses were down 20 bps on a year-over-year basis and came in at 16.1%.
Accenture’s operating income came in at $1.09 billion or 13.7% of net revenue compared with $1.02 billion or 13.6% of revenues reported in the year-ago quarter. Accenture reported $904.6 million in net income or $1.34 per share.
Balance Sheet & Cash Flow
Accenture exited the quarter with total cash balance of $3.04 billion compared with $3.08 billion in the preceding quarter. Accenture’s long-term debt balance at the end of the second quarter was $26.9 million.
Operating cash flow was $317.3 million in the reported quarter while free cash flow was $169 million.
Share Repurchase and Dividend
In line with its policy of returning cash to shareholders, Accenture repurchased 8.1 million shares for $829 million during the second quarter. The company declared its semi-annual cash dividend of $1.10 per share during the quarter.
Guidance
For the third quarter of fiscal 2016, Accenture expects net revenue between $8.10 billion and $8.35 billion (mid-point $8.225 billion). The Zacks Consensus Estimate is pegged at $7.71 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 8% to 10% in local currency (previously 6% to 9%). Accenture now expects its earnings per share in the range of $5.21–$5.32 (previously $5.09–$5.24). The Zacks Consensus Estimate is pegged at $5.21 per share.
For fiscal 2016, the company now expects its operating margin in the range of 14.6% to 14.7% (previously 14.6% to 14.8%). Effective tax rate is now expected to be in the range of 22.5% to 23.5% (previously 25% to 26%). Accenture reiterated its operating cash flow ($4.1 billion to $4.4 billion) and free cash flow ($3.6 billion to $3.9 billion) guidance.
Our Take
Accenture delivered better-than-expected second quarter fiscal 2016 results. Also, revenues increased on a year-over-year basis, reflecting increased focus on the Consulting and Outsourcing business, new bookings and continuous return of shareholders’ value. Moreover, the company provided an encouraging third quarter and fiscal 2016 revenue guidance.
Going forward, 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 #2 (Buy). Investors may consider Lexmark International Inc. LXK, which sports a Zacks Rank #1 (Strong Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Be the first to comment