Accenture plc (ACN) is scheduled to announce its first quarter 2012 results on December 15 after market close. There have been some changes in analysts’ estimates following the release of its fourth quarter 2011 results.
Fourth Quarter Recap
Accenture posted impressive fourth quarter earnings per share (EPS) of 91 cents, beating the Zacks Consensus Estimate by 2 cents. Accenture reported net revenue of $6.69 billion, up 23.4% from $5.42 billion reported in the year-ago quarter. Net revenue was above the company’s guided range of $6.40 billion to $6.60 billion.
The results included an 8.0% positive impact from foreign currency. The meaningful growth in net revenue may be attributed to the significant increase in revenues across Accenture’s operating segments and healthy demand for its offerings across the industries served.
On a year-over-year basis, revenues increased 23.0% for Financial Services, 23.0% for Communications & High Tech and 25.1% for Product. Revenues from Resources were up 28.1%, while Health & Public Services Group revenues grew 16.1% from the year-ago quarter. Other revenues grew 32.1% year over year. Consulting and Outsourcing revenues increased 25.4% and 20.6% from the last year to $3.88 billion and $2.81 billion, respectively.
Total operating expenses grew 19.3% year over year due to increases of 17.5% in sales and marketing expenses and 9.0% in general and administrative expenses. However, as a percentage of net revenue, operating expenses were lower than the year-ago quarter. The operating margin was 13.8% compared to 13.2% in the year-ago quarter.
Guidance
For the first quarter of fiscal 2012, Accenture expects net revenue in the range of $6.8 billion to $7.0 billion. This figure was arrived at after considering a 3.0% positive foreign-exchange impact. The Zacks Consensus Estimate for earnings is 92 cents.
For full fiscal 2012, net revenue growth is projected in the range of 7.0% to 10.0%. Expectations for new bookings are in the range of $28.0 billion to $31.0 billion. The company expects its operating margin in the range of 13.7% to 13.9% and the annual tax rate between 27.0% and 28.0%. Diluted EPS expectation is between $3.80 and $3.88. The earnings guidance is above the Zacks Consensus Estimate of $3.39.
Agreement of Analysts
Out of the 16 analysts providing estimates for the first quarter, two analysts downgraded estimates in the last 30 days. Again, for fiscal 2012, three analysts downgraded their estimates over the last 30 days. For fiscal 2013, three analysts downgraded their estimates in the last thirty days while no upward revision was witnessed. Therefore, there appears to be some moderate negative sentiment among analysts.
Specifically, analysts are a bit concerned about the potential impact on demand given the prevailing uncertain economic conditions, sovereign debt issues in Europe (40.0% of net revenue) and decelerating growth in the Europe, Middle East and Africa (EMEA) region. Some analysts expect the impact to be modest and thus believe that demand will remain moderate in Europe, including ACN’s consulting business.
Some analysts expect IT spending growth to be 3.0% in 2012, down from 5.0% projected for 2011. The downside is primarily due to the tough global macro backdrop. Additionally, based on the latest survey results, discretionary IT spending for services in the next six months is showing signs of weakening from its peak level in August.
Magnitude of Estimate Revisions
The Zacks Consensus Estimate for the first quarter of fiscal 2012 increased by 2 cents over the last 90 days while the same for fiscal 2012 moved up by 5 cents. However, for 2013 estimates moved down by 5 cents to $4.23 over a period of 90 days. Estimates have remained unchanged over the last 30 day period, except for fiscal 2013, which has moved down by 4 cents.
Recommendation
Accenture posted encouraging fourth quarter results, but business fundamentals are expected to be tempered in the upcoming quarter. Owing to lower demand as well as an unfavorable IT spending scenario and economic turmoil in Europe, the company’s business might suffer.
Moreover, recovery of the financial services sector is expected to take some time. Notwithstanding these headwinds, we are encouraged by the steady flow of new business from higher tech spending in 2011.
The company has a Zacks #4 Rank, implying a short-term Sell rating.
(We have revised this article to correct a problem. The original version, published December 13, 2011, should no longer be relied upon.)
