Accenture (ACN) Tops Q4 Earnings & Revenues, Guides Well

Accenture plc (NYSE:ACN) reported better-than-expected fourth-quarter fiscal 2016 results.

Its fourth-quarter fiscal 2016 earnings per share (‘’EPS”) of $1.68 beat the Zacks Consensus Estimate of $1.30 per share. Also, earnings increased on a year-over-year basis, primarily attributable to higher revenues, lower tax rate and share count.

Revenues and Bookings

Accenture’s fourth quarter net revenue not only increased 7.6% year over year to $8.489 billion but also surpassed the Zacks Consensus Estimate of $8.405 billion. In local currency terms, revenues increased 9% year over year. Net revenue also came toward the higher end of management’s guided range of $8.25 billion and $8.50 billion.

The year-over-year increase was primarily aided by an 11% increase in Consulting revenues ($4.61 billion). Outsourcing revenues increased 4% on a year-over-year basis ($3.88 billion). It is worth mentioning that Consulting revenues increased 13% in local currency whereas Outsourcing revenues increased 6% in local currency.

Among the operating segments, Communications, Media & Technology revenues were up 4% on a year-over-year basis to $1.70 billion. Revenues from Health & Public Services and Financial Services increased 11% and 6% year over year to $1.54 billion and $1.80 billion, respectively. Revenues from Products increased 17% on a year-over-year basis and came in at $2.25 billion. Resources, however, decreased 3% on a year-over-year basis to $1.20 billion during the quarter.

Geographically, revenues from the North Americas and Europe increased 10% and 4% on a year-over-year basis, respectively. Revenues from Growth Markets (Asia Pacific, Latin America, Africa, the Middle East, Russia and Turkey) increased 8% on a year-over-year basis.

Accenture reported new bookings of $9 billion during the quarter, which were negatively impacted by foreign currency fluctuations. Consulting bookings and Outsourcing bookings for the quarter amounted to $4.8 billion and $4.2 billion, respectively.

Operating Results

Fourth quarter gross margin decreased 40 basis points (bps) on a year-over-year basis to 31.3%, primarily due to higher cost of services.

Combined sales and marketing expenses and general and administrative costs increased 3.5% from the year-ago quarter to $1.46 billion. However, as a percentage of net revenue, these expenses were down 70 bps on a year-over-year basis to 17.2%.

Accenture’s operating income was $1.19 billion or 14.1% of net revenue compared with $1.09 billion or 13.9% of revenues reported in the year-ago quarter. Accenture reported $1.12 billion in net income or $1.68 per share compared with $778.6 million or $1.15 per share reported in the year-ago quarter.

Balance Sheet & Cash Flow

Accenture exited the quarter with total cash balance of $4.91 billion compared with $3.50 billion in the preceding quarter. Accenture’s long-term debt balance at the end of the fourth quarter was $24.5 million.

Operating cash flow was $2.06 billion in the reported quarter while free cash flow was $1.9 billion.

Share Repurchase and Dividend

In line with its policy of returning cash to shareholders, Accenture repurchased 5.6 million shares for $640 million during the fourth quarter. The company declared a semi-annual cash dividend of $1.21 per share (an increase of 10%) during the quarter, payable on Nov. 15, 2016.

Guidance

For the first quarter of fiscal 2017, Accenture expects net revenue between $8.40 billion and $8.65 billion (mid-point $8.525 billion). The Zacks Consensus Estimate is pegged at $8.406 billion. The company did not provide any earnings per share guidance.

Accenture provided its guidance for fiscal 2017 as well. The company expects net revenue to grow in the range of 5% to 8% in local currency. Accenture expects earnings per share in the range of $5.75–$5.98 (mid-point $5.865 per share). The Zacks Consensus Estimate is pegged at $5.82 per share.

For fiscal 2017, the company expects operating margin to be in the range of 14.7% to 14.9%. Effective tax rate is expected to be in the range of 22% to 24%. Accenture expects operating cash flow in the range of $4.6 billion to $4.9 billion and free cash flow in the range of $4 billion to $4.3 billion.

Our Take

Accenture delivered better-than-expected fourth 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 first quarter and fiscal 2017 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 (NASDAQ:CTSH) and International Business Machines Corporation (NYSE:IBM) , a strained spending environment and Accenture’s broad European exposure may temper its growth to some extent.

Share of Accenture were up more than 3% in pre-market trading.

Accenture has a Zacks Rank #3 (Hold). Investors may consider Ambarella, Inc. (NASDAQ:AMBA) , which sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here

Ambarella has a long term-expected EPS growth rate of 14.67%

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