Accenture plc (ACN) reported first-quarter fiscal 2014 earnings per share of $1.15, beating the Zacks Consensus Estimate of $1.09. Earnings increased 8.6% from the year-ago quarter attributable to higher revenues, operating income, lower share count and favorable tax rate.
Revenues and Bookings
Accenture’s first-quarter net revenues increased 1.9% on a year-over-year basis to $7.36 billion and came ahead of the Zacks Consensus Estimate of $7.23 billion. Net revenue also was at the high end of management’s guided range of $7.0 billion to $7.3 billion, primarily aided by higher-than-expected Outsourcing revenues (up 5.0% on a year-over-year basis to $3.42 billion), which more than offset Accenture’s Consulting revenues, down 1% year over year to $3.94 billion.
Among the operating segments, Health & Public Services revenues increased 5.0% from the year-ago quarter to $1.23 billion while revenues from Financial Services were up 2.0% from the year-ago quarter to $1.60 billion.
Accenture’s revenues from Products of $1.80 billion increased 6.0% while revenues from Resources remained flat on a year-over-year basis at $1.32 billion. Communications, Media & Technology revenues were down 3.0% on a year-over-year basis to $1.41 billion.
Geographically, revenues from the Americas, and Europe, the Middle East and Africa (EMEA) increased 3.0% and 3.0%, respectively, on a year-over-year basis, while revenues from the Asia-Pacific region recorded a decline of 6.0% from the year-ago quarter.
Accenture reported new bookings of $8.7 billion during the quarter. Consulting bookings and Outsourcing bookings for the quarter were $4.3 billion and $4.4 billion, respectively.
Operating Results
First-quarter gross margins increased 50 basis points (bps) from the year-ago quarter to 33.3%, primarily due to higher revenue base.
Operating expenses increased 1.3% from the year-ago quarter due to a 6.9% increase in sales and marketing expenses. The company accounted reorganization benefits of $18.0 million. As a percentage of net revenue, operating expenses expanded 30 bps to 18.5% from the year-ago quarter.
Accenture’s operating income increased 4.0% from the year-ago quarter to $1.09 billion, while margins expanded 30 bps to 14.8%. Accenture reported net income of $800.9 million or $1.15 per share which increased from $757.8 million or $1.06 per share.
Balance Sheet & Cash Flow
Accenture exited the quarter with total cash balance of $4.53 billion versus $5.63 billion in the preceding quarter. Accenture’s long-term debt balance at the end of the first quarter was $25.9 million.
Operating cash flow was $181 million in the reported quarter compared with $1.28 billion in the prior quarter while free cash flow for the quarter was $122.0 million.
Share Repurchase and Dividend
Consistent with Accenture’s policy of returning cash to its shareholders, the company repurchased 9.7 million shares for a total value of $722.0 million during the first quarter. The activity included 8 million shares repurchased in the open market. Accenture paid dividends worth $630.0 million.
Guidance
For the second quarter of 2014, Accenture expects net revenues between $6.95 billion and $7.25 billion. The company did not provide any update on fourth-quarter earnings per share.
The company modified its guidance for fiscal 2014. Although, Accenture expects net revenue to grow in the range of 2.0% to 6.0% in local currency, the company has upped its earnings per share outlook from the range of $4.42-$4.54 to $4.44-$4.56. The company expects new bookings in the range of $32 billion-$35 billion.
During fiscal 2014, the company expects its operating margins to range between 14.3% and 14.5%. In fiscal 2014, the company expects operating cash flow in the range of $3.6 billion-$3.9 billion while free cash flow in the range of $3.2 billion-$3.5 billion.
Recommendation
Accenture’s first-quarter results reflect its increasing focus on the Outsourcing business, operating cost optimization, new bookings and continuous return of shareholders’ value. However, its consulting business was a bit of a disappointment.
Improved bookings growth and solid performance across insurance, banking and healthcare segments reflects strong demand for Accenture’s services, boosting long-term growth prospects. However, increasing competition from Cognizant Technology Solutions (CTSH) and IBM (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), which carries a Zacks Rank #1 (Strong Buy).
(We are reissuing this article to correct a few mistakes. The original article, issued last week, should no longer be relied upon.)
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