Accenture plc (ACN) reported fourth quarter 2010 earnings per share (EPS) of 66 cents, substantially exceeding the Zacks Consensus Estimate of 63 cents. The quarter’s results were up 69.2% from the year-ago quarter, attributable to higher revenues and margins as well as a lower share count, partially offset by a higher tax rate.
Revenues
Accenture reported fourth quarter 2010 net revenue of $5.42 billion, up 5.2% from $5.15 billion reported in the year-ago quarter and above the Zacks Consensus Estimate of $5.31 billion. This was within the company’s guided range and included a three percentage point negative impact from foreign currency. The meaningful growth in net revenue may be attributed to the increase in revenues across all its operating segments.
Accenture saw revenue growth across the majority of its operating groups, with Product revenues improving the most by 13.0% on a year-over-year basis. Communications & High Tech revenues grew 4.1%, while Financial Services revenues were up 9.6% year over year. Revenues from Resources were up 7.5% from the year-ago quarter. The improvement in these segments was partially offset by a 9.0% decrease in revenues in the Health & Public Services group.
Geographically, the Americas reported an 11.3% growth in revenues compared with the year-ago quarter, Europe Middle East and Africa (EMEA) reported a 2.7% decline in revenues, and the Asia Pacific region reported a 13.2% increase in revenues compared with the year-ago quarter.
Bookings
Consulting bookings were $3.5 billion and outsourcing bookings were $3.0 billion. On the whole, new bookings in the fourth quarter were $6.5 billion, which reflects a negative 1.0% foreign currency impact as against new bookings in the comparable period last year.
Operating Results
The fourth quarter gross margin (as a percentage of net revenue) was 33.6%, compared with 31.7% in the comparable quarter last year. The utilization rate remained flat year over year at 86.0%.
Operating margin (as a percentage of net revenue) was 13.2%, compared with 8.2% in the year-ago quarter. The improvement in the operating margin was mainly due to a 14.9% year-over-year increase in sales and marketing expenses. The increase in selling expenses can be credited to the implementation of the sales effectiveness model in the first quarter of 2010.
Accenture reported net income of $503.8 million or 66 cents, up from $301.4 million or 39 cents in the year-ago quarter. The effective tax rate was 28.8% compared with 27.6% in the year-ago quarter.
Balance Sheet & Cash Flow
Operating cash flow in the quarter was $1.25 billion compared with $1.05 billion in the year-ago quarter. Net property and equipment additions were $102.0 million, up from $75.0 million in the year-earlier quarter. Days of services outstanding were 30, down from 38 in the year-ago quarter. Total cash balance as of August 31, 2010, was $4.84 billion versus $4.31 billion as of May 31, 2010.
Accenture declared a semi-annual cash dividend of 45 cents per share, which is a 20.0% increase over its previous semi-annual dividend, declared in March. Moreover, the company repurchased 18.9 million of its outstanding shares at a total value of $738.0 million.
Guidance
For the first quarter of fiscal 2011, Accenture expects net revenue in the range of $5.6 billion to $5.8 billion. This figure was arrived at after taking into consideration a 5% negative foreign-exchange impact.
For fiscal year 2011, the company expects net revenue growth in the range of 7.0% to 10.0%. New bookings are expected to range between $25.0 billion and $28.0 billion. The company also expects operating margin of between 13.6% and 13.7%, annual tax rate of 28.0% to 29.0% and diluted EPS of $3.00–$3.08.
Accenture also expects operating cash flow to be in the range of $2.7–$2.9 billion; property and equipment additions to be roughly $340 million; and free cash flow in the range of $2.4 billion to $2.6 billion.
Recommendation
We believe that fourth quarter results are encouraging given the revenue beat and solid bookings. Moreover, we are encouraged by the steady flow of new business, which is the result of increasing tech spending in 2010. However, we prefer to take a cautious stand until revenue growth shows more sustained momentum.
We currently have a short-term Hold recommendation on Accenture, implying a Zacks #3 Rank.
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