Accenture plc (ACN) reported fourth-quarter fiscal 2013 earnings per share of $1.01, marginally beating the Zacks Consensus Estimate of $1.00. Earnings increased 14.8% from the year-ago quarter attributable to higher revenues, operating income, lower share count and favorable tax rate, partially offset by lower non-operating income.
Revenues and Bookings
Accenture’s net revenues for the quarter not only increased 3.7% from the year-ago quarter to $7.09 billion, but also came ahead of the Zacks Consensus Estimate of $6.89 billion.
Net revenue also beat management’s guided range of $6.70 billion to $7.00 billion, primarily aided by higher-than-expected consulting revenues (up 2.0% on a year-over-year basis to $3.8 billion). Moreover, Accenture’s Outsourcing revenues also increased 6.0% from the year-ago quarter to $3.3 billion.
Among the operating segments, Health & Public Services revenues increased 12.0% from the year-ago quarter to $1.18 billion while revenues from Financial Services were up 3.0% from the year-ago quarter to $1.52 billion.
Accenture’s revenues from Products of $1.70 billion increased 6.0% while revenues from Resources were down 1.0% from the year-ago quarter to $1.29 billion. Communications, Media & Technology revenues remained flat on a year-over-year basis at $1.39 billion.
Geographically, revenues from the Americas, and Europe, the Middle East and Africa (EMEA) increased 8.0% and 2.0%, respectively, on a year-over-year basis, while revenues from the Asia Pacific region recorded a decline of 7.0% from the year-ago quarter.
Accenture reported new bookings of $8.4 billion during the quarter. Consulting bookings and Outsourcing bookings for the quarter were $3.8 billion and $4.6 billion, respectively. During the quarter, bookings related to Consulting translated into revenues at a faster pace than management’s expectations which helped the top line.
Operating Results
Fourth-quarter gross margins increased 26 basis points (bps) from the year-ago quarter to 33.2%, primarily due to higher revenue base.
Operating expenses increased 4.4% from the year-ago quarter due to a 6.4% increase in sales and marketing expenses, 11.8% increase in reorganization costs and 0.8% increase in general and administrative costs. Reorganization costs remained negligible on a per share basis. As a percentage of net revenue, operating expenses expanded 14 bps to 19.3% from the year-ago quarter.
Accenture’s operating expenses increased 4.6% from the year-ago quarter to $983.5 million while margins expanded 10 bps to 13.9%. Accenture reported net income of $727.3 million up from $636.2 million.
Balance Sheet & Cash Flow
Accenture exited the quarter with total cash balance of $5.63 billion versus $5.94 billion in the preceding quarter. Accenture’s long-term debt balance at the end of the fourth quarter was $25.6 million.
Operating cash flow was $1.27 billion in the reported quarter compared with $1.50 billion in the prior quarter while free cash flow for the quarter was $1.2 billion.
Share Repurchase and Dividend
Consistent with Accenture’s policy of returning cash to its shareholders, the company repurchased 14.5 million of its common outstanding shares for a total value of $1.10 billion during the fourth quarter. The activity includes 13.3 million shares repurchased in the open market. Management also approved an additional $5.0 billion share repurchase which increased Accenture’s total share outstanding authority to $7.0 billion.
Accenture also declared semi-annual dividend of 93 cents per share (an increase of 15.0%) payable on Nov 15, 2013.
Guidance
For the first quarter of 2014, Accenture expects net revenues of between $7.0 billion and $7.3 billion. The company did not provide any update on fourth-quarter earnings per share.
The company also provided guidance for fiscal 2014. Accenture expects net revenue to grow in the range of 2.0% to 6.0% in local currency. The company expects earnings in the range of $4.42 to $4.54 per share. The company expects new bookings in the range of $32 billion-$35 billion.
During fiscal 2014, the company expects its operating margins to expand in the range of 10 basis points (bps) to 30 bps from the previous year. In fiscal 2014, the company expects operating cash flow in the range of $3.6 billion-$3.9 billion; property and equipment additions are expected to be $400 million; and free cash flow in the range of $3.2 billion-$3.5 billion.
Recommendation
Accenture’s fourth-quarter results reflect its increasing focus on the outsourcing business, operating cost optimization, new bookings and continuous return of shareholders’ value. Moreover, its consulting business is also showing signs of recovery.
Improved bookings growth and solid performance across insurance, banking and healthcare segments reflects strong demand for Accenture’s services, boosting long-term growth prospects. The recent acquisitions in the banking space are also expected to strengthen its capabilities. The company’s associations with Vodafone (VOD) and Telenor for providing IT services are expected to benefit, going forward.
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).
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