Accenture (ACN) Q3 Earnings Surpass Estimates, FY19 View Up

Accenture plc (NYSE:ACN) reported impressive third-quarter fiscal 2019 results, wherein both earnings and revenues surpassed the Zacks Consensus Estimate.

Earnings of $1.93 per share surpassed the consensus estimate by 5 cents and came ahead of the year-ago figure by 14 cents. The bottom line benefited from higher revenues and operating results, lower effective tax rate, lower non-operating expense and lower share count. These were, however, partially offset by a higher income attributable to non-controlling interests.

Net revenues of $11.10 billion outpaced the consensus mark by $96.5 million and increased 4% year over year on a reported basis and 8.4% in terms of local currency. Net revenues came in line with the higher end of the guided range of $10.80-$11.10 billion.

So far this year, shares of Accenture have gained 30% compared with 25.6% rise of the industry it belongs and 15% increase of the Zacks S&P 500 composite.

Revenues in Detail

On the basis of type of work, Consulting revenues (56% of net revenues) of $6.24 billion increased 3% year over year on a reported basis and 7% in terms of local currency. Outsourcing revenues (44%) of $4.86 billion increased 5% year over year on a reported basis and 10% in terms of local currency.

Among the operating segments, Communications, Media & Technology revenues (20% of net revenues) of $2.25 billion increased 3% year over year on a reported basis and 7% in terms of local currency. Financial Services revenues (20%) of $2.20 billion decreased 2% year over year on a reported basis but increased 4% in terms of local currency. Health & Public Service revenues (16%) of $1.82 billion increased 4% year over year on a reported basis and 6% in terms of local currency. Products revenues (28%) of $3.08 billion increased 4% year over year on a reported basis and 8% in local currency. Resources revenues (16%) of $1.75 billion increased 13% year over year on a reported basis and 19% in terms of local currency.

Geographically, revenues from North Americas (46% of net revenues) of $5.15 billion increased 9% year over year on a reported basis as well as in terms of local currency. Revenues from Europe (34%) of $3.77 billion decreased 3% year over year on a reported basis but increased 5% in terms of local currency. Revenues from Growth Markets (20%) of $2.18 billion increased 5% year over year on a reported basis and 13% in terms of local currency.

Booking (NASDAQ:BKNG) Trends

Accenture reported new bookings worth $10.6 billion. Consulting bookings and Outsourcing bookings totaled $6.0 billion and $4.6 billion, respectively.

Operating Results

Gross margin (gross profit as a percentage of net revenues) for the third quarter of fiscal 2019 increased 60 basis points (bps) to 31.8%. Operating income was $1.72 billion, up 5% year over year. Operating margin in the reported quarter expanded 20 bps to 15.5%.

Balance Sheet & Cash Flow

Accenture exited third-quarter fiscal 2019 with total cash and cash equivalents balance of $4.77 billion compared with $4.46 billion at the end of the prior quarter. Long-term debt was $19.9 million compared with $19.8 million at the end of the prior quarter.

Cash provided by operating activities crossed $2.12 billion in the reported quarter. Free cash flow came in at $1.98 billion.

Dividend Payment

On May 15, 2019, Accenture paid a semi-annual cash dividend of $1.46 per share to shareholders of record at the close of business on Apr 11, 2019.

Combined with the semi-annual cash dividend of $1.46 per share paid on Nov 15, 2018, the total cash dividend payment for the fiscal year came in at $2.92 per share.

The company plans to pay dividends on a quarterly basis from the first quarter of fiscal 2020.

Share Repurchases

In line with the policy of returning cash to its shareholders, Accenture repurchased 2.8 million shares for $488 million in the fiscal third quarter. The company had approximately 638 million total shares outstanding as of May 31, 2019.

Guidance

Fourth-Quarter Fiscal 2019

For fourth-quarter fiscal 2019, Accenture expects revenues to be in the range of $10.85- $11.15 billion, which indicates 5-8% growth in local currency. The assumption is inclusive of a negative foreign-exchange impact of 2%. Notably, the Zacks Consensus Estimate of $10.99 billion lies within the current guided range.

Fiscal 2019

Accenture updated its guidance for fiscal 2019. Management raised the EPS range to $7.28-$7.35 from 7.18-$7.32 anticipated earlier. The mid-point of the raised guidance ($7.32) is above the Zacks Consensus Estimate of $7.29 for the period. Revenues are expected to register 8-9% growth, in terms of local currency, compared with 6.5-8.5% growth rate as expected previously.

Operating margin for the fiscal year is still expected around 14.6%, indicating an expansion of 20 basis points from fiscal 2018.

The company continues to expect negative foreign-exchange impact of 3% on its results in U.S. dollars.

Operating cash flow is anticipated in the range of $5.85-$6.25 billion. Free cash flow is expected in the $5.2-$5.6 billion band. Annual effective tax rate is expected to be 22.5-23.5%.

Zacks Rank & Upcoming Releases

Accenture currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Investors interested in the broader Zacks Business Services sector are keenly awaiting second-quarter 2019 reports from key players like TransUnion (NYSE:TRU) , Republic Services (NYSE:RSG) and Waste Management (NYSE:WM) . While TransUnion will release earnings on Jul 23, Republic Services and Waste Management will report on Jul 25.

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