Accenture plc (ACN) on Q1 2021 Results - Earnings Call Transcript

Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Accenture's First Quarter Fiscal 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Instruction will be given at that time. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Managing Director, Head of Investor Relations, Ms. Angie Park. Please go ahead. Angie Park: Thank you, operator, and thanks, everyone, for joining us today on our first quarter fiscal 2021 earnings announcement. As the operator just mentioned, I'm Angie Park, Managing Director, Head of Investor Relations. Julie Sweet: Today, we are very pleased to announce strong financial results for our first quarter. I will begin by thanking our 514,000 people for their hard work and dedication to delivering value for our clients, which is what these results represent. Last quarter, I shared that as we began our fiscal year 2021, we were turning a page, no longer navigating a crisis, but facing a new reality with a laser focus on delivering value to our clients at this time of great need and on returning to pre-COVID growth rates by the second-half of our fiscal year. I also shared how we began fiscal year 2021 stronger than pre-crisis. Our results in Q1 made clear how we have strengthened our market position, as well as our ability to pivot our business with agility. Not only have we delivered a strong quarter, but we took exciting new actions to continue to strengthen our market position for FY 2021 and the future. KC McClure: Thank you, Julie. Happy holidays to all of you, and thanks for taking the time to join us on today's call. We were very pleased with our overall results in the first quarter, which exceeded our expectations and represent a positive first step to achieving our full-year objectives. The focused execution of our strategy continues to extend our leadership position in the marketplace, as we deliver significant value to our clients and our shareholders in an uncertain and volatile environment. So let me begin by summarizing a few of the highlights of the quarter. Revenues grew 2% in local currency and continue to include a reduction of approximately 2 percentage points from a decline in revenues from reimbursable travel costs. Q1 revenues were more than $200 million above our guided range, driven by broad-based over-delivery across markets, services and industries. We also continue to extend our leadership positions with growth significantly above the market. The diversity of our business continues to serve us well, and the industry trends remain consistent with the last few quarters. Approximately 50% of our revenues came from seven industries that were less impacted by the pandemic, and in aggregate continue to grow high single digits, with continued double-digit growth in public service, software platforms and life sciences. At the same time, we saw continued pressure but at a more moderate level from clients in highly impacted industries, which include: travel, energy, high-tech, including aerospace and defence, retail and industrial. While performance varied, this group represents over 20% of our revenues and declined low double digits. Our operating margin was 16.1% for the quarter, an increase of 50 basis points. We delivered expansion while making significant investments in our business and our people to extend our market leadership. We continue to benefit from lower spend on travel and events. And we delivered very strong EPS of $2.17, up 8% over fiscal 2020, after adjusting both years for gains on an investment. And finally, we delivered significant free cash flow of $1.5 billion and returned $1.3 billion to shareholders through repurchases and dividends. We also invested approximately $500 million in acquisitions and we expect to invest at least $1.7 billion in acquisitions this fiscal year. With those high level comments, let me turn to some of the details, starting with new bookings. New bookings were $12.9 billion for the quarter, reflecting an overall book-to-bill of 1.1. Consulting bookings were $6.6 billion with a book-to-bill of 1.0. Outsourcing bookings were $6.3 billion with a book-to-bill of 1.2. Julie Sweet: Thank you, KC. Let me start with the environment. We saw in Q1 a broad base increase in demand that is faster than we anticipated 90 days ago. This means that as our clients have the confidence and ability to spend, they are turning to Accenture. But the uncertainty and volatility of the biggest health, economic and social crisis in our lifetimes remains, particularly as the world continues to face a deepening health impact pre-widespread vaccination. From an overall demand perspective, the trends that we discussed last quarter are continuing. Companies need to accelerate their digital transformation across their enterprises and move to the cloud, address cost pressures, build resilience and security, adjust their operations and customer engagement to a remote everything environment and changing expectations and find new sources of growth. What is becoming even more clear however, is that we are in an era of compressed transformation, in which the winners by industry will be those who are earliest to replatform their businesses in the cloud, and have the digital core and new ways of working that allows them to continuously improve their operations and find new sources of growth, which for most leading companies is requiring them to simultaneously transform multiple parts of their enterprises and their talent. For the pre-COVID digital leaders, they are racing to widen the gap, and for the digital laggards, they are racing to leapfrog. We are uniquely positioned to help the leaders and the laggards because of the depth and breadth of our capabilities. We bring the trust, experience, speed and scale that are essential to achieve compressed transformation. KC McClure: Thanks, Julie. Before I get into our business outlook, as I did last quarter, I would like to remind you that given the coronavirus pandemic, there are a number of factors that we may not be able to accurately predict, including the duration and magnitude of the impact, the pace of the recovery, as well as those described in our most recent quarterly filings. Now, with that said, let me turn to our business outlook. For the second quarter of fiscal '21, we expect revenues to be in the range of $11.55 billion to $11.95 billion. This assumes the impact of FX will be about positive 3% compared to the second quarter of fiscal '20, and reflects an estimated 1% to 4% in local currency and includes a reduction of approximately 2 percentage points from a decline in revenue from reimbursable travel costs. The entire range for Q2 reflects the continued build back of our business over Q1. For the full fiscal year '21, based on how the rates have been trending over the last few weeks, we now expect the impact of FX on our results in U.S. dollars will be approximately positive 3% compared to fiscal '20. For the full fiscal '21, we now expect our revenues to be in the range of 4% to 6% growth in local currency over fiscal '20, including approximately negative 1% from a decline in revenues from reimbursable travel, based on a 2% reduction in the first-half of the year and no material impact in the second-half of the year. For operating margin, we continue to expect fiscal '21 to be 14.8% to 15.0%, a 10 to 30 basis point expansion over fiscal '20 results. We continue to expect our annual adjusted effective tax rate to be in the range of 23% to 25%. This compares to an adjusted effective tax rate of 23.9% in fiscal '20. For earnings per share, we now expect our full year diluted EPS for fiscal '21 to be in the range of $8.17 to $8.40. We now expect adjusted full year diluted EPS to be in the range of $8.02 to $8.25 or 8% to 11% growth over adjusted fiscal '20 results. For the full fiscal '21, we now expect operating cash flow to be in the range of $6.65 billion to $7.15 billion. Property and equipment additions to be approximately $650 million, and free cash flow to be in the range of $6 billion to $6.5 billion. Our free cash flow guidance continues to reflect a very strong free cash flow to net income ratio of 1.1 to 1.2. Finally, we continue to expect to return at least $5.3 billion through dividends and share repurchases, as we remain committed to returning a substantial portion of cash to our shareholders. With that, let's open it up so we can take your questions. Angie? Angie Park: Thanks, KC. I would ask that you each keep to one question and a follow-up to allow as many participants as possible to ask a question. Operator, would you provide instructions for those on the call? Operator: Thank you. Your first question comes from the line of Lisa Ellis from MoffettNathanson. Please go ahead. Lisa Ellis: Good morning, guys. Great to hear all of you and happy holidays. I would just ask my two right up-front. Looking at the utilization number of 93% in the quarter, I peeked back and that is the highest number you've reported in more than 10 years. So two questions, one more strategic and one more numbers related on that. I guess, first, can utilization be structurally higher now with the shift to remote work and so we should expect these kinds of levels going forward? Or are you kind of getting to the point that you're labor constrained and you're going to be ramping hiring and that number will come down a bit? That's the more, I guess, strategic question. And then maybe for KC, was higher utilization the primary driver of the 100 basis point increase in gross margins? Or is that also being affected by the reduction in travel costs? Thank you. KC McClure: Okay. Hi, Lisa. Thanks for your question. Happy holidays. So maybe I'll start with your second question first. Just on gross margin. So we did have expansion in gross margin and there were a few drivers to that. The first is contract profitability was up this quarter. And in contract profitability, we did benefit from lower travel, so that does help our contract profitability overall. So that is the first thing, I would say, benefited our gross margin. And you do see that the fact that we have higher utilization also does help our gross margin as well. So both of those points were included in drivers of our gross margin. And when you look at utilization, we did have a very high productivity this quarter. It did click up in parts and that was pretty broad-based and that was also driven by our over-delivery of Q1 revenue. We did continue to recruit throughout the summer, and obviously into this quarter, you can see that our headcount is up sequentially. And so we don't see any issues meeting demand and attracting talent. And to your point on, is there a structural change from working remotely, the answer is really no. We were just able to get more productivity out of all of our groups this quarter. And looking forward, we do think that's going to kind of ease back into kind of a more normal range, which still is very high productivity, but not continuing at these levels. Lisa Ellis: Terrific. Thank you. Operator: Your next question comes from the line of Tien-Tsin Huang from JPMorgan. Please go ahead. Tien-Tsin Huang: Hey, thanks. Good morning. Good results here. I want to just ask about the outlook here and what's changed in the last 90 days. I know you received – looking at revenue while you're up $200 million over your guidance, you overcame low-double-digit declines in strategy and in consulting. From a macro standpoint, we got what vaccines have been approved and cases are up, but your bookings are strong again. So I'm just trying to think you seem really well set up for the second-half to be quite strong, even if strategy and consulting comes back slowly. So do you feel more confident in the outlook for strategy and consulting? Or is the composition of work just changing versus what you thought maybe 90 days ago? Any thoughts on that? KC McClure: Yes. So let me just talk a little bit about what drove our overperformance in Q1, and how that impacts our view of Q2 and H2, Tien-Tsin. So, when you look at Q1, we were obviously very pleased with our performance, and we have rather significant over-delivery against our expectations. And that was really driven by broad-based over-delivery, in all three of our markets, in all of our industry groups and all of our services all did a bit better. And as I mentioned in our script, when you take a look at the industries and the higher impacted industries, which represent over 20% of our revenues, they did improve from Q4 of a decline of mid-teens to low double digits. And as Julie talked quite a bit about the fact that that was really driven broad-based by our strong demand in cloud. And so that is an area that performed better than we expected. But if you also look at the lower impacted industries, which are 50% of our revenue, they continue to grow high single digits like Q4, but they actually did improve also within that sense. And so let me maybe connect this a little bit to how we did our sales this quarter. So we had a very strong start to the year, as you could see in our sales of $12.9 billion, which is about $2.5 billion more than what we've done in the last two quarter ones, last two fiscal years. And when you peel that back, Tien-Tsin, you can see that it was really driven by all categories of our sales side, so the large, which Julie highlighted that we have 16 clients over $100 million in sales, but all the way through and significantly driven by an improvement in our smaller deals, which came in better than we expected. And that can help us with revenue yield in the current quarter. So when I take a look at that, that's what happened with Q1. And then when you look at that compared to 90 days ago, obviously, that's better. And when you look at -- then what for Q2, we obviously have a better outlook for Q2 than we did 90 days ago with our 1% to 4% growth range. Really important to note that all of points in that range are an improvement over Q1. So we continue to build back our business from the lows of H2. And we would be really pleased with anywhere that we land in that range. Now, when you look at the second-half of the year, we haven't changed our views on the second-half of the year from 90 days ago. And just to be very specific, we still see that we would have high single-digit to low double-digit growth in the back-half of the year. And just as a reminder, the four factors that we talked about last quarter that we're going to drive that remain the same. And just very briefly, they are first, that we continue to expect an improvement in the macroeconomic environment. We don't see another -- we're not anticipating another macroeconomic shock that's built into our guidance. We expect to see more of a benefit from the significant transformational deals that we sold last year. And at the same time, to your question, we do expect strategy and consulting to reconnect with growth. And our performance in Q1 and our outlook for Q2 do encourage us even more on that statement this quarter. And the fourth thing is that we have the benefit of an easier compare that obviously remains the same. And we are also still going to anniversary the reimbursable revenue headwind, that's 2% in the first-half of the year and that won't be a headwind in the back-half of the year. So, of course, we're still meeting with our clients, you can see that by the fact that we were able to book $27 billion in the last two quarters. But we are not planning on having significant increases in revenue related to travel in the back-half of the year. So hopefully, that gives you a sense of how we see the business compared to what is stay the same now from 90 days ago, which is our outlook in H2. But obviously, we're very pleased with the improvements and performance in Q1 and outlook for Q2 than we had 90 days ago. Julie Sweet: And, Tien-Tsin, let me just kind of give you a little more color from the clients’ perspective, because -- and this is what I talked a little bit about in my script, right?. If you just sort of remember, pre-COVID, we said we were in the early innings of transformation with the beginning of the decade, it’d be enterprise-wide, right? COVID hits, technology becomes the lifeline. And you really see companies understanding kind of the two truths of our world, right? There is - every business is now a technology business and exponential technology change is going to continue, right? And now it's about the speed. And this is why we're seeing what I'm calling compressed transformation, where you continue to see companies say we are going to take on this transformation more broadly. So look at the example of Takeda. They're both moving to the cloud, improving their data and making sure that they're getting near-term business value. You take a Halliburton, cloud, finance, supply chain. So there's this speed of change and we see that in the confidence. We're nine months in now. The first part of the crisis, people were getting their footing, getting back up and running. And it's interesting, we did some research in July across 10 markets and nearly 80% of the executives that we surveyed said that they were planning on investing in digital transformation. And that was up from 50% in May. And we're continuing just to see this recognition of the need to get there faster. And then what's important to understand is that, all of this is happening, though, in the context of the cost pressures, the changing expectations. And this is where a decade and in some cases multiple decades of investment from Accenture has put us in a very unique position, because no other company in our industry can simultaneously do operations and that help a company reduce their supply chain in their finance function and reduce costs and digitize. At the same time, we're helping them migrate to the cloud and give them that view, which because all of this has interdependencies. You want to get end-to-end process change. And we have literally been building these capabilities for years and years. And this is where the scale and the breadth matter. Tien-Tsin Huang: It sounds very clear. I appreciate for the complete answer, guys, here, and it seems like the outlook is set up pretty well here. Thank you. Operator: Your next question comes from the line of Matthew O'Neill from Goldman Sachs. Please go ahead. Matthew O'Neill: Yes, thank you so much for taking my question. I was hoping we could drill down a little bit deeper into Accenture Cloud First, I think it's just on 90 days since the formal announcement. Curious, understanding a lot of sort of anecdotes in the prepared remarks around Takeda, Halliburton, et cetera. But where you're seeing the most immediate need to deploy the $3 billion that you identified for an investment, earliest and first? And sort of mirroring that where the greatest demand is coming from the client side, understanding, there's kind of a broad-based, I think COVID-driven catalyst to potentially get off the fence and move one's business to become fully digital cloud, et cetera, et cetera? Julie Sweet: Sure. So, Matthew, thanks for the question. So maybe just take, let's just first start why our companies having to accelerate faster to the cloud. And there's a few clear reasons. So first of all, there's a cost pressure, because when they move to the cloud, there's immediate savings just in the migration and there's obviously to get that kind of savings. Second, the cloud is really important for resilience and security. And in this current environment in particular, you can see why that matters. The crisis really exposed the vulnerabilities of a lot of the on premise IT estates. And then that has been compounded, of course, by the expansion of the threat surface through more remote working. And so the resilience and security of the cloud is also an immediate driver as to the need to do that. What I would say is probably most important and really the rapid acceleration is the need for the power of the cloud to enable the data driven transformations. And so you saw that in the example that we gave, with Takeda, where they're changing the customer experience, which requires near real time access to data in order to personalize and to be able to actually do that. And what I think is very unique, I know is very unique about Accenture is that this is where our strategy and consulting capabilities are so important, because the reason to go to the cloud is not simply cost and resilience and security, it's about the business value. And here's how we're helping clients get early business value. And you have to deeply understand the industry, the patients, the customer, and also what data is valuable among all of the data and which workloads go first. And so, it really is driven by all of these things at once, which is why our capabilities around changed management, around talent transformation and leadership are important, because, by the way, everybody wants to go higher at cloud talent in this thing. And so, it's not going to be enough available to our ability to reskill, which you saw in each of these examples that we gave in the script like Generali and Takeda is also a critical. So that's sort of the big picture. Now, when you think about where we're going to do investment, we talked about we did 10 acquisitions this quarter, four of them were in cloud. They were in each of our three markets and they were about building scale for the most part in more markets. And so, as we think about the acquisition strategy which will be a big component of the $3 billion, it's about building scale and markets around the world as well as acquiring niche capabilities. The second big area of that $3 billion investment though, is creating more and more of the assets that will allow our clients to move quickly. Everything from the myNav asset that we talked about, that does a fast diagnostic with benchmarks to help clients figure out what kind of a strategy to have and how to get value to the migrating navigate advisor that helps you figure out the reduction in carbon, to the industry blueprints that we're creating, and the solutions that are repeatable like in digital manufacturing on the cloud. So this will be an important part of our continued investment. And again, it really comes right back to -- no other company has both these deep engineering and infrastructure skills, the deep relationships. And then the strategy and consulting capabilities to actually move industries to the cloud to create business value solutions. And you don't build that overnight. We have been building our strategy and consulting business for decades. We have been an early adopter for cloud for decades. And let's not forget, we're our own best credential when it comes to all of these capabilities. Matthew O'Neill: That's really helpful and interesting. I guess, as a quick follow-up, I was just curious, you mentioned in the script Droga5 acquisition and more broadly Accenture Interactive. And wondering if there's significant sort of cross sell and upsell opportunity as you integrate more assets like Droga5 and present a more comprehensive suite to both the existing and new clients for things that they might not have maybe originally known or thought of Accenture for first and foremost. Is that a part of the equation here? Julie Sweet: Absolutely. And when you think about Accenture Interactive, like we are doing amazing work like our own brand and purpose work for ourselves via again our best credential. But what these capabilities bring is we're actually embedding them in all of our services. Our clients come to us for outcomes and experience is a really important part of it. Again, when you think about the work we are doing with Prudential that we talked about last quarter, that was fundamentally a different way of engaging with the customer. Takeda, a different way of engaging with the donor, the researchers in the Norway example about how they're going to engage. We are embedding this experience, and how to do that in all of our work, and so that's why I often talk about, I know you all certainly look at our services, separately our four services, our clients look at our outcomes. And what differentiates us is our ability to embed the business of experience across Accenture, as well as going to market of course, like a Droga5 that continues to do amazing, pure work in terms of brand for example. Matthew O'Neill: Thanks so much. Really helpful. Thinking about that in the context of sort of experience and outcome. I'll jump back in the queue. Operator: Your next question comes from the line of Bryan Bergin from Cowen. Please go ahead. Bryan Bergin: Hi, good morning. Thank you. I wanted to ask on bookings. Was there anything pulled forward in bookings relative to your prior expectation? Or do you still anticipate a building cadence for the year? And can you comment on bookings conversion pace and considering the outperformance you've had the last two quarters. I'm just curious how you're seeing the pace of these larger transformational engagements? KC McClure: Yes, thanks. We were really pleased with our bookings this quarter. As I mentioned, they did grow 25%, and as you just pointed out, and I mentioned as well, we did have a stronger Q1 than we had in the last two years. If you peel that back it's really because the demand, again, which was very broad-based. It was really also driven by cloud, which we've talked a lot about Industry X security. So they're also aligned to our strategic priorities. If you look at it, what drove the strength in bookings, again, broad base, when you look at it by type of work. We have particular strengths in outsourcing, that really was up quite a bit with very strong book-to-bill. But, within the 16 clients that we booked over $100 million, they were represented, what I liked about that is by outsourcing as well as consulting type work, it was a nice mix, all five of our industry groups were in there too. So again, it points to very broad-based. And if you look at the services, again, no surprise based on cloud, security and Industry X tech services, very strong. And I mentioned, I just want to highlight again, that we are pleased with our progress in strategy and consulting, they had a 1.1 book-to-build in the quarter. So, overall, we felt really pleased. And as it relates to kind of what we see ahead, we feel very good about our pipeline. And if you're taking on the question about conversion or revenue yield in bigger deals, we did see that our bookings were strong across all parts of our sales, large all the way through, but particularly to the smaller deals, and they do yield more revenue in the current quarter. So that's also true. And then as you see -- when you look really at our duration, it's not that the duration of the bookings in themselves have changed, it's really more of the services that are in the mix. So, as we have more strategy and consulting bookings coming online, they obviously tend to be of a shorter duration. So nothing's really changed in the duration of each of our individual services. It's really more of the mix of the bookings within each quarter. Julie Sweet: Yes. And so next quarter, we expect a very nice, very strong quarter in bookings. Bryan Bergin: Okay. And then just over the last several years, you've had special businesses here that competitors have not that have enabled you to grow faster than the market. I'm thinking about operations and interactive specifically, as critical growth engines. From here, do you anticipate a rotation of the growth engine? So is Cloud First and Industry X, are those the new engines that you expect to drive above market? I'm just curious, how you consider those now relative to competitors that are also heavily investing in those areas. And doing so earlier today than they did around interactive before? KC McClure: Sure, great question. So let me just start with, we have been investing in cloud for a decade, which is a very hard to replicate. And so we start with a $12 billion business that is growing strong double digits. So we would expect to continue to take market share there. And in this environments, where you have a rapid acceleration, and you're moving mission critical workloads, we would expect to continue to differentiate, because of our decades of experience and our relationships with the world's leading technology ecosystem players. So cloud will continue to be a big trend. Think about Industry X, and we've talked about this now for some time, it's kind of the next Accenture Interactive. And as you know, we've been investing in Industry X for some time. The COVID, what we're seeing the early signs of is that like in other areas, Industry X is we think going to accelerate over the next couple of years, because that was still a newer part of the enterprise that was being digitized the manufacturing and operations space. But as we now need to have like, a lot of health concerns about can you do manufacturing in a more contactless way, the supply chains have been disrupted. And so we have said, for some time Industry X is going to be the next growth engine. And the early signs are is that it's likely to be accelerating as well. So we'll see how that continues to play out. And remember, Accenture Interactive is an ongoing growth engine. I mean, we have three big platforms. You have the move to the cloud, which then has the data and the business value innovation on top. So it's not just moving there, it's everything that comes. And so that is an early innings, 20% into the cloud, but it's not just about the move, it's our unique ability to create business value to access the data and you're seeing that in the examples of what we're doing. This depends on where you are on that journey. So that is an ongoing platform for waves and waves of instant growth. The second being everything we do around intelligent operations, our operations business, our ability to move to modern digital platforms like what we talked about in IPS today. So that, again, provides we're early innings in the digitization of operations. And then Accenture Interactive, the business of experience that's an ongoing business in terms of that will always have to continue to evolve. And so, we see that the impact of the COVID crisis, we're starting to move out of that and building momentum. We continue to expect that to be a growth engine. And once again, this is where you can't make up for quickly the scale that we've achieved, because we've been investing for years and creating these capabilities. And then finally, you have this area of Industry X, and not to mention security and data, which will all continue to be of growing engines for us. Bryan Bergin: Thank you. Operator: Your next question comes from the line of Bryan Keane from Deutsche Bank. Please go ahead. Bryan Keane: Good morning, guys, and congrats on the solid results. I wanted to ask on Interactive, just trying to understand the trajectory there. What did it kind of do in the fourth quarter? Did it even turn negative growth? And then now it's at low single, so does it kind of move up from here? I know there's been a lot of questions before on Interactive, given would that business be weaker during kind of a slowdown and it looks like it's hanging in there. So just curious on the trajectory where it was last quarter and kind of what you expect it to do throughout the year? KC McClure: Yes, so in each two so kind of a whole six months, it was a low single digit decline, and now we're in a low positive growth rate. And it's building momentum. So, for example, we're helping a big European bank with their digital sales, new things. So everyone's now starting to kind of reconnect with new experiences. Bryan Keane: Got it. And then just on the other strategic priority on security, low double digit growth, is that about the right growth rate for that, too? Or does that also accelerate as we get into the back-half when we see the pickup in the growth rates? KC McClure: Look, I think on security, we're super pleased with that about double digit growth. So, whether it's going to be low or strong, it'll probably ebb and flow. But the consistency of that double digit growth in security has been impressive to-date, and we continue to see that to be the trajectory. Thanks. Angie Park: Great. Operator, we have time for one more question, and then Julie will wrap up the call. Operator: Okay, that question comes from the line of James Faucette from Morgan Stanley. Please go ahead. James Faucette: Thank you very much. I wanted to ask, you mentioned that you have some targets for M&A this year. From a spend perspective, can you talk a little bit about what you're seeing from a valuation perspective and how we should expect those to contribute to growth in the coming fiscal year or during the current fiscal year and beyond? And what kind of areas you're targeting more specifically? KC McClure: Yes, thanks. So in terms of our D&A, we expect to spend at least $1.7 billion and there's no change to what we started out at the beginning of the year, the 2% expectation of additional revenue growth for this year. And it's aligned to really a lot of our all of our strategic priorities that we went through. James Faucette: And then thinking about that and I realized look that's consistent with what you've said before. But I'm just wondering how we should project that then into the future? Is this kind of the right level of acquisitions for Accenture? Or should we expect that to grow? Or do you think we're in a peak period? Just trying to think about that part of capital allocation. Thanks. KC McClure: Yes, sure. So we've always aimed around 20%, 25% of our operating cash flow in our capital allocation program to be for D&A. But we've always had the ability and we continue to have the ability to do more should any opportunity arise. So there's really no change to how we view D&A of our capital allocation. Thanks. James Faucette: Thanks. Julie Sweet: Great. So thank you, everyone, for joining us on today's call. We're very pleased with our strong start in fiscal '21. Thank you again to our incredible people across the globe. And thank you to our shareholders for your continued trust. Best wishes to all for a safe, healthy and joyful holiday season. Operator: Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation and for using AT&T teleconference. You may now disconnect.
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UBS Upgrades Accenture to Buy with $400 Target, Citing AI Growth Potential

UBS analysts upgraded Accenture (NYSE:ACN) to Buy from Neutral, setting a new price target of $400 on the stock.

The analysts highlighted the potential for multiple expansion as the market begins to anticipate accelerated revenue growth driven by AI opportunities. While there are concerns about the pace of IT spending, the analysts believe Accenture's shift towards cloud services, digital transformation, cybersecurity, and now Generative AI will support higher and more sustainable growth.

The analysts’ evaluation of Accenture's top 10 alliance partners indicates a positive trend for revenue acceleration over the next year. They noted that the current stock price does not fully reflect the potential of Generative AI, with Accenture already securing approximately $2 billion in GenAI bookings by Q3/24, compared to $300 million in the fiscal year ending August 2023.

Additionally, the analysts expect GenAI adoption to accelerate as clients recognize the value from initial experimentation, potentially scaling even faster than Accenture's cloud business, which grew from $1 billion in revenue in 2012 to $32 billion, representing about 50% of total revenue in 2023.

Accenture Quarterly Earnings Preview

  • Wall Street anticipates an EPS of 3.14 and revenue estimates of $16.57 billion for Accenture's upcoming earnings report.
  • Despite a forecasted slight year-over-year decline, the Managed Services segment is expected to see a 4.6% revenue increase.
  • Accenture's valuation metrics, including a P/E ratio of approximately 25.54 and a P/S ratio of about 2.78, highlight its financial health and market position.

Accenture (NYSE:ACN) is gearing up for its quarterly earnings report on Thursday, June 20, 2024, before the market opens. With Wall Street setting its sights on an earnings per share (EPS) of 3.14 and revenue estimates hovering around $16.57 billion, the spotlight is on Accenture's financial performance. As a leading global professional services company, Accenture offers a broad range of services and solutions in strategy, consulting, digital, technology, and operations. It operates in a competitive landscape, going head-to-head with other consulting giants and technology service providers. The upcoming earnings report is crucial as it provides insights into the company's operational efficiency and market position.

Despite Accenture's impressive track record of surpassing earnings expectations in the past four quarters, with an average beat of 4.9%, the current forecast suggests a tempered outlook. Analysts predict a slight year-over-year decline in both revenues and earnings for the third quarter of fiscal 2024. The anticipated revenue is pegged at $16.5 billion, a marginal decrease from the previous year, attributed to reduced spending in key sectors such as software and platforms, communications, media, and banking. This scenario underscores the challenges Accenture faces amidst shifting market dynamics and client spending behaviors.

However, not all is bleak for Accenture. The Managed Services segment is expected to shine, with revenues projected to hit $8.2 billion, marking a 4.6% increase from the previous year. This growth is partly fueled by the effective deployment of Accenture's SynOps platform, highlighting the company's ability to innovate and adapt to changing market needs. Such performance in the Managed Services segment could offset the downturns in other areas, underscoring the importance of diversification in Accenture's business model.

The financial community closely watches earnings revisions, as they can significantly impact a stock's short-term movements. In Accenture's case, analysts have revised their consensus EPS estimate downward by 0.6% over the last 30 days. This adjustment reflects a cautious stance on the company's financial outlook for the quarter ended May 2024. Historical trends suggest that the direction of earnings estimate revisions can influence stock performance leading up to the earnings announcement, making it a critical factor for investors to monitor.

Accenture's valuation metrics, such as the price-to-earnings (P/E) ratio of approximately 25.54 and the price-to-sales (P/S) ratio of about 2.78, offer insights into how investors view the company's earnings potential and overall value. These ratios, along with the enterprise value to sales (EV/Sales) and the enterprise value to operating cash flow (EV/OCF), provide a comprehensive picture of Accenture's financial health and market position. With a low debt-to-equity (D/E) ratio and a solid current ratio, Accenture demonstrates financial stability and resilience, key attributes that investors consider when assessing the company's long-term growth prospects.

Accenture Drops 6% on Guidance Cut

Accenture (NYSE:ACN) experienced a 6% drop in its stock price intra-day today after the company adjusted its revenue growth expectations for the fiscal year 2024 downward. In its Q2, Accenture reported an earnings per share of $2.77, which was higher than the anticipated $2.66 by analysts. However, its revenue of $15.8 billion was just shy of the $15.84 billion forecast.

For the upcoming Q3, Accenture projects its revenues to range between $16.25 billion and $16.85 billion.

For the fiscal year 2024, Accenture has revised its expected revenue growth to between 1% and 3% in local currency, down from the earlier projection of 2% to 5%.

Accenture Plunges 5% After Q4 Earnings Report

Accenture (NYSE:ACN) shares dropped more than 5% intra-day today after the company released its Q4 results and provided guidance for its full fiscal year.

The company reported an EPS of $2.71, surpassing the Street estimate of $2.66. However, the revenue for the quarter came in slightly below expectations at $15.99 billion, compared to the Street estimate of $16.07 billion.

Looking forward, Accenture offered guidance for 2024, projecting an EPS range of $11.97 to $12.32. This is slightly lower than the Street forecast of $12.46. Additionally, for fiscal year 2024, Accenture anticipates revenue growth in the range of 2% to 5%.

For the first quarter of fiscal 2024, the company expects revenues to fall within the range of $15.85 billion to $16.45 billion.

Accenture Reports Better Than Expected Q3 Earnings

Accenture (NYSE:ACN) reported its Q3 earnings results yesterday, with EPS of $3.19 coming in better than the Street estimate of $3.01. Revenue was $16.6 billion, beating the Street estimate of $16.49 billion.

Management noted continued pressure on revenue and bookings from smaller deals, especially in Strategy & Consulting, systems integration work and Communications, Media & Technology. New bookings increased 2% year-over-year on a reported basis, and increased 4% in local currency to $22.1B in Q3 for a book-to-bill ratio of 1x.

For Q4/23, the company expects revenue to be in the range of $15.75-$16.35 billion, compared to the Street estimate of $16.35 billion. For the full year, the company sees EPS in the range of $11.52-$11.63, compared to the Street estimate of $11.60.

Accenture Shares Gains 8% Since Q2 Beat

Accenture (NYSE:ACN) shares rose nearly 8% since the company’s reported Q2 earnings results last week, with EPS of $2.69 coming in better than the Street estimate of $2.49. Revenue was $15.8 billion, beating the Street estimate of $15.61 billion.

Reflecting lower anticipated FX headwinds, but a tightening of local-currency revenue growth towards the lower end of the prior range, management maintained the midpoint of its 2023 reported revenue guidance and adjusted operating margin targets, while increasing its EPS guidance.

The company expects 2023 EPS in the range of $11.41-$11.63, compared to the Street estimate of $11.45. Full-year revenue growth is expected in the range of 8% to 10% in local currency and a foreign-exchange impact of negative 4.5%.

Furthermore, the company announced its plans to lay off about 19,000 people, or approximately 2.5% of its total global workforce.

Accenture’s Upcoming Q1 Results Preview

Deutsche Bank analysts provided their outlook on Accenture plc (NYSE:ACN) ahead of Q1/23 results, expected to be announced on Dec 16.

The analysts expect the company to deliver Q1 revenues of $15.492 billion and EPS of $2.92 as it benefits from IT services demand and accelerated investments in Cloud, Industry X, Song and Security.

The analysts view the company as the gold standard among IT Services companies and do not believe it has seen any material weakness to date.

The analysts expect the company to guide to Q2/23 revenue growth of 7-11% and conservatively reiterate its 2023 revenue guidance of 8-11%.