Accenture (ACN) Earnings, Revenues Beat Estimates In Q3

Accenture plc (NYSE:ACN) delivered better-than-expected third-quarter fiscal 2018 results. Non-GAAP earnings (excluding the effect of US tax law changes) came in at $1.79 per share, outpacing the Zacks Consensus Estimate of $1.71. The bottom-line also increased from $1.52 per share reported in the year-ago quarter.

In a year’s time, shares of Accenture have rallied 31.7%, outperforming the 24.6% increase recorded by the industry it belongs to.

Revenues and Bookings

In the reported quarter, Accenture’s net revenues increased 16% year over year to $10.3 billion and surpassed the Zacks Consensus Estimate of $10 billion. In local currency terms, the top line grew 11% on a year-over-year basis. Net revenues also surpassed management’s guided range of $9.9-$10.15 billion (mid-point $10.03 billion).

The year-over-year increase in net revenues can primarily be attributed to a 18% rise in Consulting revenues ($5.69 billion). Outsourcing revenues were up 14% on a year-over-year basis ($4.63 billion) as well. It is worth mentioning that both Consulting and Outsourcing revenues improved a respective 12% and 10% from the year-ago quarter number in local currency.

Among the operating segments, Communications, Media & Technology revenues increased 22% on a year-over-year basis to $2.13 billion. Revenues from Health & Public Services and Financial Services rose 10% and 15% year over year to $1.70 billion and $2.14 billion, respectively. Revenues from Products and Resources were up 17% and 18% year over year to $2.84 billion and $1.25 billion, respectively.

Geographically, revenues from North Americas and Europe advanced 11% and 22%, respectively. Revenues from Growth Markets (Asia Pacific, Latin America, Africa, the Middle East, Russia and Turkey) improved 19% on a year-over-year basis.

Accenture reported new bookings worth $11.7 billion. Consulting bookings and Outsourcing bookings for the reported quarter totaled $5.9 billion and $5.8 billion, respectively.

Operating Results

The fiscal third-quarter gross margin contracted 60 basis point (bps) year over year to 32.2%. Accenture’s operating income totaled $1.62 billion or 15.7% of net revenues compared with $865 million or 9.8% of revenues registered in the year-ago quarter. The company reported $1.06 billion of net income compared with $705 million in the year-earlier quarter. If the effect of the new US tax laws is excluded, the net income amounted to $1.18 billion.

Balance Sheet & Cash Flow

Accenture exited the fiscal third quarter with a total cash and cash equivalents balance of $3.93 billion compared with $3.59 billion in the preceding quarter. The company’s long-term debt balance at the end of the reported quarter was $26 million.

Operating cash flow for the quarter was $1.99 billion, while free cash flow was $1.81 billion.

Share Repurchase

In line with its policy of returning cash to shareholders, Accenture repurchased 4.7 million shares for $720 million in the fiscal third quarter. The company’s total remaining share repurchase authority as on May 31, 2018, was around $1.45 billion.

Guidance

For fourth-quarter fiscal 2018, Accenture expects net revenues between $9.80 billion and $10.05 billion. The Zacks Consensus Estimate is pegged at $9.97 billion. The company did not provide any guidance for earnings per share.

For fiscal 2018, Accenture raised the range of the percentage increase in revenues. The company now estimates net revenues to grow in the band of 9.5-10% in local currency compared with the previously predicted range of 7-9%.

On GAAP basis, earnings per share for fiscal 2018 are projected in the range of $6.26-$6.31, including the effect of the tax laws.

Excluding the impact of the tax laws, earnings are expected between $6.61 and $6.70 compared with the previous guidance of $6.66 to $6.71. The Zacks Consensus Estimate is pegged at $6.68.

For fiscal 2018, the company envisions operating cash flow to be in the range of $5.5-$5.8 billion compared with $5.2-$5.5 billion anticipated earlier. Free cash flow is expected between $4.9 billion and $5.2 billion compared with $4.6 billion and $4.9 billion projected earlier.

The effective tax rate is expected to be in the range of 27-28%, up from the previous projection of 24-26%.

Zacks Rank & Stocks to Consider

Currently, Accenture has a Zacks Rank #4 (Sell).

Better-ranked stocks in the broader Business Services sector include The Dun & Bradstreet Corp. (NYSE:DNB) , BG Staffing, Inc. (NYSE:BGSF) and FLEETCOR Technologies, Inc. (NYSE:FLT) . While Dun & Bradstreet sports a Zacks Rank #1 (Strong Buy), BG Staffing and FLEETCOR carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The long-term expected earnings per share (three to five years) growth rate for BG Staffing, Dun & Bradstreet and FLEETCOR Technologies is 20%, 6% and 16.5%, respectively.

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