Accenture Results: Order Book Strengthens Suggesting Strong Demand For Outsourcing And Consulting

Dec 23 2013, 4:48pm CST | by

Accenture Results: Order Book Strengthens Suggesting Strong Demand For Outsourcing And Consulting
Photo Credit: Forbes Business

Accenture reported its Q1 FY 2014 results on December 19. The company once again delivered strong numbers as revenues grew by 3% in constant currency to $7.4 billion. Accenture’s operating margin increased marginally to 14.8% in Q1 compared to 14.5% at the same time last year, leading to operating income of $1.09 billion. The company also reported higher diluted earnings per share to $1.15.

In our article published earlier, we stated that we expected outsourcing revenues to outpace the industry in the first quarter. We also expected consulting revenues to remain flat. The company result was in line with our expectation as the outsourcing revenue grew 6% year over year in constant currency to $3.42 billion, while the consulting business revenues were flat at $3.94 billion. Furthermore, as per our expectations, the company reported a strong order pipeline, and booked new orders worth $8.7 billion in Q1 FY14.

See our full analysis on Accenture

Maintains Revenues Guidance For FY14

Accenture expects net revenues for fiscal 2014 to grow in 2% to 6% range (with a midpoint of $29.70 billion) and GAAP operating profit margins to improve to 14.3% to 14.5% range. However, it expects a mild improvement in diluted EPS, which will now be in the $4.44 to $4.56 range. The company continues to target new bookings for fiscal 2014 in the range of $32 billion to $35 billion. In the outlook for Q2 2014, Accenture expects revenues to range from $6.95 – $7.25 billion.

Outsourcing Revenues Outpace Industry

According to our estimates, the outsourcing division contributes approximately 40% to Accenture’s value. This division continued to outpace the outsourcing industry as revenues grew by 6% to $3.42 billion. Additionally, Accenture continued to report strong demand for its outsourcing services with new bookings at $4.4 billion. However, the book-to-bill ratio, which indicates the dollar amount of new order received for every dollar amount of revenue billed, declined by 10 basis points sequentially to 1.3. Still orders outpaced billings by 30%. Considering this strong order pipeline, we expect that Outsourcing will continue to deliver growth in Q2 as well.

Stronger Than Expected Orders For Consulting

Management and technology consulting are important drivers for Accenture’s value and account for around 40% of our price estimate combined. While the revenues for the divisions were flat at $3.94 billion, the company reported momentum in new orders that will result in low single-digit growth in Q2, according to their guidance.

During the quarter, the company booked $4.3 billion in new orders for the consulting business. The book-to-bill ratio, the key metric that ascertains the growth in new contracts (as we noted above), improved to 1.1. The company also reported that it is witnessing mild recovery in orders from EMEA and Asia, which may help the consulting division to post growth in the coming quarters. If IT spending, across the world, were to improve, we can expect the company to post mid single-digit growth.

Focus on New Business Intensifies

The company launched two new platforms, Accenture Digital and Accenture Strategy, earlier this month. These platforms will focus on social media, mobile computing, analytics and the cloud domain. The company has reiterated that it is planning to acquire companies to bolster revenues from these new platforms. While these businesses not only garner high margins, they also have exceptionally high growth rates as widespread adoption of Internet and cloud services prevails. Therefore, we expect these new platforms to be a key driver for growth going ahead.

We are in the process of upgrading our Accenture model. At present, we have a $74.06 Trefis Price Estimate for Accenture which 8% below its current market price.

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Source: Forbes Business


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