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Accenture Earnings: Consulting And Outsourcing Growth Boosts …

Accenture ( ACN ) reported its Q1 FY 2017 results on December 21st. (Fiscal years end with August.) Despite the strength on the U.S. dollar, the company posted 6% year-over-year growth (7% in constant currency) in revenues to $8.5 billion. This was at the higher end of the company’s guided range of $8.40 billion to $8.65 billion. In our pre-earnings note published earlier, we stated that we expected consulting revenues to outpace the industry in the first quarter, while outsourcing revenue to grow at a tepid rate. However, outsourcing division delivered positive surprise even as consulting division continued its positive trend despite the appreciation of the U.S. dollar.

  • Consulting net revenues for the quarter were $4.59 billion, an increase of 6% in U.S. dollars and 7% in constant currencies compared with the first quarter of fiscal 2016.
  • Outsourcing net revenues were $3.92 billion, an increase of 7% in both U.S. dollars and constant currencies over the first quarter of fiscal 2016.

During the quarter, the company reported new orders of $8 billion, reflecting a negative 1% foreign-currency impact compared with new bookings in the first quarter last year. The detailed summary for the results is as follows:

See our full analysis for Accenture

Guidance For FY17 and FYQ2

Accenture expects net revenue to be in the range of $8.15 billion to $8.40 billion in FQ2, a growth of 5-8% in constant currency. For fiscal 2017, the company expects net revenue growth to be in the range of 5% to 8% in constant currency. Based on the updated foreign exchange assumptions, it expects diluted EPS to be in the range of $5.64 to $5.87. Accenture continues to expect operating margin for the full fiscal year to be in the range of 14.7%  to 14.9%, an expansion of 10 to 30 basis points from fiscal 2016.

Orderbook Signings Gains Traction

Accenture reported new signings of $8.3 billion during Q1, which bought the total order backlog to $35.2 billion, based on our calculations. Even though the level of new bookings follows typical pattern of lower new bookings in first quarter, the new order signings grew by 7.8% compared to those of Q1 2016. Considering the conversion rate of the order book, we estimate that Accenture’s revenues in future quarters might continue to outperform the guided range.

Consulting Revenues Post Growth

Management and technology consulting are important drivers for Accenture’s value and account for around 56.8% of Trefis’s price estimate combined. Consulting revenues for the quarter were $4.6 billion, up 6%. Furthermore, the company’s momentum for new orders grew as it booked orders of $4.9 billion (or 59% of total new bookings) during the quarter. The book-to-bill ratio, the key metric that ascertains the growth in new contracts, stabilized at 1.07. We expect that the consulting division will deliver high single-digit growth in 2017 as the significant investments in new and high-growth areas across Accenture continue to gain traction in the year. Specific areas of higher growth include digital, cloud and security services, which together now account for more than 40% of total revenues,

Outsourcing Revenues Decline Due To Currency Headwinds

According to our estimates, the outsourcing division contributes approximately 43.2% to Accenture’s value. During the quarter, this division continued to outpace the outsourcing industry as net revenues as grew by 7% to $3.92 billion. However, Accenture reported soft demand for its outsourcing services with new bookings at $3.4 billion or 41% of new bookings. The book-to-bill ratio, which indicates the dollar amount of new order received for every dollar amount of revenue billed, declined to 0.87. While the company expects mid-single digit growth for its outsourcing services, we believe that the company will struggle to deliver these results if order signings do not improve over the remainder of FY2017.  We note that the orders recorded in Q1FY17 only grew by 3.0% in constant currency,

We are in the process of updating our model. At present, we have a $118.03 price estimate  for Accenture, which is inline with its current market price.

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Article source: http://www.nasdaq.com/article/accenture-earnings-consulting-and-outsourcing-growth-boosts-revenues-cm725338

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