Accenture (ACN) is scheduled to announce its third quarter and fiscal year 2010 results on June 24. There have been significant changes in analyst estimates since its second quarter 2010 results.
Second Quarter Overview
The company reported mediocre second quarter 2010 EPS of 60 cents, missing the Zacks Consensus Estimate of 61 cents.
Accenture reported second-quarter 2010 total revenue of $5.54 billion, down 2.1% from $5.66 billion a year earlier. The company witnessed revenue declines across most operating groups, with the biggest revenue drop of 7.0% reported in the Communication & High Tech segment. Geographically, only the Asia Pacific region reported an increase in revenue, while the Americas and EMEA regions tumbled compared to the year-ago quarter.
The company recorded consulting bookings of $3.39 billion in the second quarter. Outsourcing bookings were $3.13 billion. On the whole, new bookings for the second quarter were $6.52 billion.
The operating performance of the company was also mediocre, as the operating margin declined to 12.6% in the recently concluded quarter, down from 12.9% reported in the year-ago period.
For the third quarter of fiscal 2010, the company expects net revenues in the range of $5.5 billion to $5.7 billion. This takes into consideration a 5% positive foreign-exchange impact, compared to the year-ago quarter.
For the full fiscal year 2010, management expects net revenue growth in the range of negative 3.0% to positive 1.0%. The company has lowered its outlook for diluted EPS for the full fiscal year by $0.06 and now expects $2.61 to $2.69. The company targets new bookings for fiscal 2010 in the range of $23 billion to $26 billion.
Agreement of Analysts
Out of the 21 analysts providing estimates for the third quarter, nine have lowered estimates in the last thirty days, while only one has made an upward revision during the same period. For fiscal year 2010, eleven analysts have revised their estimates downward over the last thirty days, with no upward revisions.
Most of downward revisions to estimates took place as a result of the recent economic turmoil in Europe. As some analysts believe this may have a temporary negative impact on the company’s result.
However, others believe that the negative news flow from Europe will not impact Accenture’s results too much, since there have been relatively positive comments on demand from the company’s closest competitor in the region, Capgemini. Also, the company’s consulting capabilities help clients reduce cost, so the products should remain attractive in a difficult market. Moreover, a revival in demand for the company’s European business is expected, driven by an improvement in client spending.
Accenture is keeping a close look at the pace of conversion from pipeline and backlog to revenues, and numbers are coming down slightly as they are actually getting converted. Some believe that the company will be able to achieve the low end of its revenue growth expectation of 7.0% to 10.0% in 2011, even if the European economy deteriorates from the current level.
Magnitude of Estimate Revisions
The magnitude of revisions is minimal since the company reported its second-quarter results. Overall, estimates for the upcoming quarter have gone down from 70 cents a month ago to 69 cents currently.
For fiscal 2010, estimates have gone down from $2.65 a month ago to $2.63 at present. For 2011, estimates have gone down from $3.02 a couple of months ago to $2.96 currently.
Recommendation
Despite improving trends noticed in Accenture’s businesses, new business wins and tech spending making an upward move in 2010, we remain cautious until revenue growth shows more sustained momentum.
We maintain our short-term Hold recommendation.
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