Accenture plc (ACN) on Q2 2021 Results - Earnings Call Transcript

Operator: Ladies and gentlemen, thank you for standing by. Welcome to Accenture’s Second Quarter Fiscal 2021 Earnings Conference Call. 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 second quarter fiscal 2021 earnings announcement. As the operator just mentioned, I am Angie Park, Managing Director and Head of Investor Relations. On today’s call, you will hear from Julie Sweet, our Chief Executive Officer and KC McClure, our Chief Financial Officer. We hope you have had an opportunity to review the news release we issued a short time ago. Julie Sweet: Thank you, Angie and thank you everyone for joining us. Today, we are proud to announce outstanding financial results for the second quarter of fiscal ‘21 and our return to pre-COVID level financial results a quarter earlier than we expected and with a tough compare. Let’s first go back 12 months ago, on March 19, only 8 days after the pandemic was declared, when we were all together to announce our outstanding fiscal year ‘20 Q2 financial results. Results you may not remember, because at the time, we were all focused on the go-forward potential impact of the pandemic. In Q2 of fiscal year ‘20, we had 8% revenue growth in local currency, our then highest bookings ever of $14.2 billion and strong underlying profitability and free cash flow. We also announced that 18 clients that quarter had bookings over $100 million. With this backdrop of fiscal year ‘20 Q2, the significance of this Q2’s results in fiscal year ‘21 becomes even more clear. We have delivered 5.4% revenue growth in local currency, which includes a reduction of 2 percentage points from a decline in revenue from reimbursable travel costs, meaning, apples-to-apples, 5.4% is in the zone of fiscal year ‘20 Q2 revenue when you exclude the travel costs related revenue. We have delivered bookings of $16 billion, beating our previous record set in Q2 last year by $1.8 billion and we have delivered strong profitability and free cash flow. This quarter, 18 clients had bookings over $100 million and we continue to take market share faster than pre-COVID. In H1, we have accelerated our investment in B&A, with approximately $1.1 billion of capital deployed and we are increasing our programmatic B&A investment to at least $2 billion for FY ‘21 from the $1.7 billion we previously communicated. KC McClure: Thank you, Julie and thanks to all of you for taking the time to join us on today’s call. We were very pleased with our overall results in the second quarter, which exceeded our expectations and reflects strong momentum across our business. We are particularly pleased with our record new bookings and strong revenue growth, which demonstrates our leading position in the market as a trusted partner to deliver value for our clients. Based on the strength of our second quarter results and the confidence in the second half of the fiscal year, we are increasing all elements of our full year outlook, which I will cover in more detail later in our call. Now, let me begin by summarizing a few of the highlights for the quarter. Revenues grew 5.4% in local currency and continue to include a reduction of approximately 2 percentage points from a decline in revenues from reimbursable travel costs. Q2 revenues were nearly $140 million above our guided range driven by broad-based over-delivery across all dimensions: markets, services and industries, as our business built back even faster than anticipated. We also continued to extend our leadership position, with growth significantly above the market. We saw broad improvement in industry trends. Approximately, 50% of our revenues came from 7 industries that were less impacted by the pandemic, which in aggregate accelerated this quarter to low double-digit growth. At the same time, we saw continued improvement from clients in highly impacted industries, which collectively represents over 20% of our revenues and declined mid single-digits. Julie Sweet: Thank you, KC. Let me start with the environment. We continued to see compressed transformation, where companies have to simultaneously transform multiple parts of their enterprise and reskill their people in what previously would have been sequential programs. They are doing so to replatform their businesses in the cloud, address cost pressures, build resilience and security, adjust their operations and customer experiences and find new sources of growth. COVID has hit a giant fast forward button to the future and we believe the demand to innovate at unprecedented speed and scale with rapid adoption of cloud, AI and other disruptive technologies, is accelerating. For digital leaders, we see them no longer strictly competing for market share, but to build their vision of the future faster than the competition. And for digital laggards, they are determined to not simply catch up, but to leapfrog. KC McClure: Thanks, Julie. Let me now turn to our business outlook. For the third quarter of fiscal ‘21, we expect revenues to be in the range of $12.55 billion to $12.95 billion. This assumes the impact of FX will be about positive 4.5% compared to the third quarter of fiscal ‘20 and reflects an estimated 10% to 13% growth in local currency. For the full fiscal year ‘21, based upon how the rates have been trending over the last few weeks, we continue to 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 revenue to be in the range of 6.5% to 8.5% 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 now expect fiscal year ‘21 to be 15% to 15.1%, a 30 to 40 basis point expansion of our 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 full year diluted EPS for fiscal ‘21 to be in the range of $8.67 to $8.85. We now expect adjusted full year diluted EPS to be in the range of $8.32 to $8.50 or 12% to 14% growth over adjusted fiscal ‘20 results. For the full fiscal ‘21, we now expect operating cash flow to be in the range of $7.65 billion to $8.15 billion, property and equipment additions to be approximately $650 million, and free cash flow to be in the range of $7 billion to $7.5 billion. Our free cash flow guidance continues to reflect a very strong free cash flow to adjusted net income ratio of 1.3 to 1.4. Finally, we now expect to return at least $5.8 billion, an increase of $500 million 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 that 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 the questions. Operator, would you provide instructions for those on the call? Operator: Thank you. Your first question comes from the line of Tien-tsin Huang from JPMorgan. Please go ahead. Tien-tsin Huang: Hey, thanks. Terrific results here. I can’t remember. I was thinking the last time you guys raised your margin outlook, especially against such strong bookings and investments like cloud first, you talked about plus this one-time bonus to employees, etcetera? So what’s different this time to allow you to do that to raise margins modestly against some good momentum here? And I will ask my follow-up just together with this, which is given the big bookings, thinking about contract execution, do you feel good about sort of the level of expectations you need to deliver here to keep this momentum going, because I know you put a lot of hard work into driving up the bookings here, but I am curious if there is anything different to consider here with contract execution looking ahead? Thanks. KC McClure: Okay. Thanks, Tien-tsin. So in terms of operating margins, let me just cover with you what’s the driver this year of our 30 to 40 basis points operating margin expansion. And you are right it is unusual for us to expand our operating margin halfway through the year. And so implied in our guidance for the year, there is obviously continued healthy margin expansion in the back half. That’s in addition, Tien-tsin to the 40 basis points that we have already done year-to-date. And then as I mentioned, which does include the impact of the one-time bonus that we are doing for employees below managing director. And I will just maybe highlight a few things in terms of drivers for the expansion this year. I mean, as always, we first look to strong revenue growth and we have that again this year. And that’s coming along with increased contract profitability. We do have increased contract profitability coming through in our gross margin in the first half of the year and that’s really the first lever that we always look at. Within this year uniquely are a couple of things. One is utilization. So, we are getting some additional margin expansion this year based on our higher utilization rate. We talked about that last quarter that we are looking to bring that down to more normal levels. It did go up this quarter. We are still working on that. But clearly, in the first half of the year and into the second half, there will be some benefit to operating margin expansion on that. And the second part is due to the lower travel events and meetings of spend this year. So, we are going to benefit from that overall for the full year, but that benefit really is in the first half of the year. As the baseline last year in the back half is as you know, we really didn’t travel or have meetings, so it’s not a benefit that we will have in the back half of the year. And so I think overall, the key thing though in operating margin is that we always look to drive strong underlying profitability, because we want to ensure that we are investing first in our business because we want to drive long-term shareholder value. And so that’s really the critical part that we are able to continue to invest in our business and in our people and in acquisitions, but while at the same time expanding operating margin significantly. Julie Sweet: Yes. And Tien-tsin, why don’t I take the – I will take the question about execution, we are very confident about our ability to execute. And let me just remind you that one of the things that’s really benefiting us is just our absolute excellent performance when the pandemic started and we had to move all of our people from our centers, while our clients were having to move remotely. As you will recall, I shared that we closed the books for 70 public companies and we did so without missing a beat that we on average pre-pandemic, have a new release every 15 minutes, 24 hours a day, on the technology say 7 days a week and we have continued with that execution. And in fact, one of the things that we believe is driving our growth is that we enhanced our standing with our clients because of how we have been able to execute, while at the same time, we help many of them move online. So we feel very good. Our centers and our people across the globe in terms of delivery are just amazing. And I should thank them, because at the end of the day, that’s what really matters for our people and we really just have exceptional people. Tien-tsin Huang: Yes, thanks both. Operator: Your next question comes from the line of Lisa Ellis from MoffettNathanson. Please go ahead. Lisa Ellis: Hey, good morning. Nice results here. Julie, I wanted to kind of rewind the clock back to early 2020, which obviously feels like eons ago now, but when you reorganized Accenture to pivot to more focus on the geographies and geographic expansion. Now that we’re a year plus in and the dust had settled a little bit, can you just kind of bring us back to that and reflect on what’s working well with that pivot, what’s working maybe less well, or it’s been more challenging than you expected. And what’s different about operating in growth markets? Just realizing that those – that the growth markets are an important part of the growth story for Accenture going forward. Thank you. Julie Sweet: Sure. Great question. One of the things that we look back on internally as a leadership team was that we actually were very bold in our ambition in my first year as CEO to actually put that new model in place only 6 months into the fiscal year and change our P&L in the middle of the fiscal year. And we look back and often use it as a lesson as to speed matters because as you think about our execution during the last 12 months, we did so with a new leadership team and a new way of working. And what it really demonstrated was we made the right strategic move. Driving the move from industry to geography were a few things. And remember, what we did was we also put digital everywhere. So we simplified because digital is now the core of our business. But the first thing is what we call the Client Proximity Imperative. We had such scale in all of our markets. We wanted to put our leaders really closer to our clients, while at the same time really enhancing the ability to move innovation around the world. And we did that by massively simplifying. And so we – at the one hand, where – we made a geographic P&L. But on the other hand, we made critical changes to actually make it easier to move innovation around the world. And secondly, we felt as if the ability to simplify and then have teams come together across our services would really unlock value. And of course, you did that before we had COVID, but we’ve seen the acceleration of the need for that because our clients are really looking for ability to bring outcomes. And so just think about the work that we are doing right now. Like I take BBVA, which you may know, it’s a customer-centric global financial services company headquartered in Spain. And we have worked with them to move – they wanted to increase their digital sales. And that brings together operation, all of our interactive capabilities, like paid media, search engine optimization, analytics and marketing operation, plus our deep industry experience. And with our support over the last 12 months, they have grown their digital sales more than 50% and they saw an increase in digital customers by more than 50%. The ability to bring those services together seamlessly to deliver those outcomes has really been enabled by that growth model that both simplified, recognize that the core of our business is now digital cloud and security, and enable us to really meet the needs of the client globally. In terms of growth markets, there is really nothing different there. I mean the geographic model helps us both focus on the opportunity in each of the markets, while at the same time, really connecting the innovation and being able to serve global clients better. Lisa Ellis: Terrific. Thanks. Maybe my quick follow-up is maybe for KC, a follow-up on Tien-tsin’s question. I know you said you’re – yes, you’re running a little hot on utilization right now. And you commented on that as well last quarter. I’m curious though, with the shift to remote work, one, do you think that shift is going to remain more permanent? And will it allow you to actually maintain a higher level of utilization on a more permanent basis? KC McClure: Yes. So thanks, Lisa, for the question. Yes, I will just reiterate. We are trying to – we are working to get it back – our utilization back into a more normal range as they did tick up this quarter. And this really is tied to the increased demand that came back harder than we expected, right? So – but we continue to believe that the right answer for our people is to lower it back into our more normal historical ranges. And in terms of the structural – is there a structural change? I believe, just now that over time, there is really not a structural change in utilization. There is probably some increase right now due to remote working, but we don’t see on a go forward any long-term structural change in our utilization rate. Julie Sweet: Yes. And just to remember, Lisa, like we have a very important value proposition that includes being able to do continuous learning, but also the right level of time to do strategic thinking, for example, and to come together around important initiatives. And so that’s why we believe that, over time, we really should get back into kind of a more normal regardless of where people are working from. Lisa Ellis: Terrific. Thank you. Thanks a lot. Operator: Your next question comes from the line of Ashwin Shirvaikar from Citi. Please go ahead. Ashwin Shirvaikar: Thank you. Hi, Julie. Hi, KC. Congratulations. These are tremendous results. Julie Sweet: Hi, Ashwin. Ashwin Shirvaikar: Just I hate to keep bringing up margin again and again. But one thing I did not necessarily hear you explicitly call out was pricing, which you might expect given sort of a price for value component, given the pivot, the mix, as you primarily do digital cloud and security, and also, frankly, a shortage of resources. It was also going to be my follow-up question, is that your attrition has ticked up, but still below historical levels. I see all the steps you took towards employee health, wellness, eventually controlling attrition. But as demand accelerates across the industry, do you expect inflation to return to historical, like mid upper teens type levels? KC McClureb: Yes. So Thanks, Ashwin, for the question. So I’ll cover the pricing point, and I’ll hand it over to Julie to talk about attrition. So maybe let’s start with context overall and what we’re seeing in the overall market and the business environment. So as we have been saying and we continue to see that the business environment does remain competitive and in some areas, we experienced pricing pressure, but we are seeing signs of stability, right? So that’s probably the first key point. In terms of the pricing that we have across our different markets or our services, as you know, the pricing can vary depending on what it is that we’re selling and in what markets that we’re doing that commercial arrangement. But what is important, what stays the same is that we always look to make sure that we are doing a smart commercial arrangement that benefits both our clients and Accenture. And that’s a key part of our 360-degree value. But as it relates to what we’re actually delivering in terms of profitability, I do want to highlight that within our operating margin and within gross margin, we did, we haven’t expanded the delivery of client profitability and contract profitability. So that’s a key part of our operating margin expansion for the year. And Julie, you want to talk about attrition? Julie Sweet: Yes Ashwin. Look, I think it’s – I think we would expect that we’re going to go back to sort of industry norms on attrition, although we will always work hard to not do that, right. And we do believe that we’re benefiting right now from the way we have cared for and – our people and the decisions we made to preserve our talent and invest in keeping them through the lower demand areas. So – but certainly, we’re tuned as a company to be able to grow and recruit at this level and at the more normal levels, as you said, in the higher teens. Ashwin Shirvaikar: Thank you. Good result. Operator: Your next question comes from the line of Bryan Keane from Deutsche Bank. Please go ahead. Bryan Keane: Hi, guys and congratulations from me as well. Just thinking, Julie, about this more structurally longer term, is this growth rate – the back half growth rate obviously being really strong in the back half, double-digit growth, implied for both the third and the fourth quarter. How has the pandemic changed things that this could be maybe more sustainable than just kind of a onetime pickup in growth and maybe the growth could be? I know we’ve talked about in the past 5% to 8% constant currency growth. Just wondering if that formula has potentially changed in the future due to the pull forward of some of the digital transformation from the pandemic? KC McClure: So we knew someone was going to try to get us to look ahead for next year, but… Bryan Keane: You got me. KC McClure: So but we’re not going to. But let me just – so instead of trying to look ahead to next year and thinking about it, let’s maybe just focus on how we are looking at our business right now. So if you think about the last 6 years when we started digital, we rotated our business so that now the core of our business is digital, cloud, security and all of our services, meaning not just – that’s not from a technical perspective. And so think about what we have built are engines of growth as the core of our business, which is what we went through when you think about cloud, Industry X, applied intelligence, operation, the things we went through on our script today. And so we have these engines of growth which we continue to invest in. And I think what’s really important in the way we think about our business is we’re – for example, cloud, we already scaled. We told you last quarter, it was $12 million in FY ‘20 but it’s growing double-digits because we’re at the very early stages of it. And when you think about Accenture Cloud First, we brought together, right, all of our services, from strategy and consulting, to experience, to cloud, industry experience, because not only are companies having to migrate to the cloud, but they need to create value, like we’re working with an American entertainment company, where we’re helping them use – leverage the cloud to accelerate the time to market of new video services, right? So it’s not about the migration. It’s about the value. And so think about our business as having built these engines of growth, some of which already have massive scale and are continuing. And then others, like Industry X, Industry X is a way that we are going to continue to diversify our revenue sources for resilience over the long-term. We made two acquisitions this quarter, Solutions and Myrtle Consulting Group, to help build our manufacturing and supply chain. We’re going to continue to invest there. We think about that as the next interactive, right, in terms of building this new area. And we’re at this amazing tipping point right now where we’re seeing an acceleration of digitization in manufacturing and in product engineering. And so we continue to think about how do we both make sure these growth engines is going, but never have to have another rotation because we’re always investing. And I mean, the last point I would just say is our capacity to invest in acquisitions has been a huge differentiator in building the business we have today, as being the core of our business is now these engines of growth. And we continue to execute on that in all of our major strategic areas and the next scale plays. And I’d call out the two we made this quarter in cloud, for example, Infinity Works and Edenhouse. Bryan Keane: Got it. Got it. And just KC, a quick follow-up, will travel and reimbursables, will that go up back to the norms of previous past? I’m just trying to figure out if some of that, obviously – some of that travel work doesn’t have to continue until the model slightly changes on that front. KC McClure: Yes. So that’s a great question, Bryan. So let me just first tell you what we’ve assumed as it relates to kind of our revenue. So we do not have in our revenue guidance an increase in travel revenue from travel-related expenses. Now obviously, we’re continuing to meet with our clients and do well, and engage with them, as you can see from our record bookings and our really strong revenue growth. But we don’t have any of that in – we don’t have that significantly embedded in our revenue. In terms of for the rest of the year, we’ll continue to see where we are with the travel and expand events and meetings. As we go throughout the rest of the year and into next year, so it’s kind of too early to tell. Julie, if you want to add anything? Julie Sweet: Yes. I agree. I mean, look, I’m having lots of conversations with companies who are just trying to figure this out, right? Will travel – will it actually explode once people feel safe because they need to reconnect? Will it structurally shift? And I would say that it’s really – we think it’s too early and company, it’s really kind of allover the map. And that hopefully will have a lot better sense as we get through the next 6 months. And we see vaccination variance and healthy – how comfortable people are. But it’s still pretty unclear. Bryan Keane: Got it. Thanks for taking the questions. Operator: Your next question comes from the line of Dave Koning from Baird. Please go ahead. Dave Koning: Hey, guys. Thanks, nice job. And I guess my first question, outsourcing growth was the strongest, I think, in 6 years, and that’s really not on an easy comp either. You had a pretty normal Q2 of last year in terms of growth. I’m wondering, is there something within outsourcing that has kind of step function change to just a better level than normal or something happening there that’s really triggering growth in such a stable part of your business typically? Julie Sweet: Well, it’s a great question. And this really is a big driver of how well we’re doing now because in this – when you have compressed transformation where the companies need to do so much at the same time, there is a really sharp focus on, what do I need to do? How do I source the talent, right? And that conversation has absolutely gone faster. But also, how can I digitize every part of the organization? And what Accenture has, which is very unique, is this investment we’ve been making for years in the SynOps platform, for example, in operations, and in technology, things like myWizard and myConcerto, which builds in best-of-class AI, machine learning, rapid testing. And these are platforms that we continuously invest in. And so when you – happening is here is that we’re helping them digitize. We are helping them focus on, what do they really need to have in-house versus can leverage in order to go faster. But one thing I want to be really, really clear about is, although our strategy and consulting business continued to have a high single-digit decline, it was better than we expected, strategy and consulting is absolutely essential to all of these results, including outsourcing. Because what we are bringing to them, right? It’s not simply always at a lower cost. It’s increase is in sales through our marketing operations, like the BBVA example I gave, right? It’s manufacturing in at AIG, which I talked about, it’s insurance, right, as well as deep process skills. It is helping them transform the ways they are working by being integrated with us where we’re bringing modern ways of working and digital. And so this is what distinguishes us as a company for our clients. It’s not – you for guys, it’s type of work, outsourcing versus consulting, which is basically managed services, it’s project work. For our clients, it’s our ability to bring all these services together, which is why I emphasize that each of the examples I gave in my script, and I gave you many more, really are polling all of these things together for an outcome and when you are going to compress transformation, that’s more important than ever. Dave Koning: Great, thanks. That’s great. And I guess my just quick follow-up. Every vertical accelerated in the quarter except for resources. And so I’m just wondering, on that vertical specifically, that got a little worse, but that hits really easy comps in the back half, anything to kind of call out there on momentum kind of reaccelerating in the future? KC McClure: Yes. Thanks, Dave. So resources, it came in, in the zone that we expected it to. And I’d just point out a couple of things. So we’ve talked about the industry is more impacted by the pandemic, and resources clearly has one of those, which is energy and that continued to be under pressure. And I would also say that our clients in the chemical industry also have been feeling some pressure as well but we have seen stability in our utilities portfolio which is good. And go forward, as we look into Q3, we do see an improvement in the resources growth rate. Julie Sweet: Yes. And by the way, this is where Industry X is going to be so critical. For example, we’re working with a North America, one of the largest oil integrators in the world, in re-imagining their plants from both health and safety security and efficiency perspective. I was just in our brand-new OT security lab in Houston last week. Yes, I actually did go on a business trip. And a big focus of OT security is across all of our volt process and discrete manufacturing. So there – obviously, as an industry – set of industries, they have been impacted. But if you think about where we’re focused and how we’re going to help them from efficiency and safety and security, it’s great. We’re well positioned. Dave Koning: Great. Thanks guys. Operator: Your next question comes from the line of James Faucette from Morgan Stanley. Please go ahead. James Faucette: Great. Thank you very much. And wanted to go back to one of the comments you made in the prepared remarks in terms of increasing your programmatic B&A. And wondering if you could just give us a little color of how we should think about contribution from that, specific areas of focus, durability, etcetera. Just trying to understand how you are thinking about that initiative, which seems really important? KC McClure: Yes. So thanks for the question. You’re absolutely right. I mean, our ability to invest significantly in our business, and that includes B&A, is a key competitive advantage. And I would just say, we’ve been at this for a long time, to your point. It’s been a core part of our strategy since 2013. On average, we’ve done about 20% of our operating cash flow to B&A, and that’s our updated guidance of about up to $2 billion – at least $2 billion, puts us in that same zone. So – but it’s not just being able to acquire. It’s successful integration. And so you can see that, that typically provides about 2% of inorganic contribution in this year. It’s going to be more, in the 2.5% zone. So we really are very focused on that as a key part of our strategy, and we will look to continue to invest. And as we’ve said, we can always – we can do more than the $2 billion if the opportunity presents itself, but it is a key part of our investment portfolio. James Faucette: Thanks. And just turning operationally for my follow-up question, can you give some color on how much of the strong demand that you’re seeing is driven by your partner network this year? And where you’re seeing most strength there? And I guess, how you would think about that part of business generation evolving over the next few quarters and periods? Julie Sweet: Our ecosystem partners are absolutely essential to our growth. I called them out in our script. We’re really proud to be the number one or number two partner, with all of the major ecosystem partners. And what we uniquely bring is, because of the strength of our relationships, we can really bring integrated value propositions to our clients. And so, those relationships are very high priority and to – and important to our future growth. James Faucette: Thanks, Julie. Thanks, KC. Julie Sweet: Thank you. Angie Park: 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 Bryan Bergin from Cowen. Please go ahead. Bryan Bergin: Hi, good morning. Thank you. Question on the outsourcing and operation strength, so you highlighted the AIG Shared Services deal this quarter, have you seen a pickup in captive acquisition opportunities that you’ve acted upon here over the last several quarters? And I’m curious how we should think about this mix contributing to your outperformance and the pipeline going forward? Julie Sweet: Well, we’ve shared in prior calls that we do see more interest in captives. We’re starting to see us execute on some of them. But I think it’s too early to say whether that’s going to be a big part of the mix or not. For the reasons I’ve talked about, we can go in and help digitize. KC, do you want to add anything? KC McClure: No. I would just say, in terms of what we see, in terms of the mix, for H2, we still see a double-digit growth in outsourcing. And for the full year, I think they will end up with high single to low double-digit positive growth in terms – to give you some sense of the mix. Bryan Bergin: Okay, I appreciate that. And then just on H&PS and Financial Services, so those both clearly had outsized performance in the quarter. Can you just talk about the key contributors underlying those two? KC McClureb: Yes. So, we were really pleased with H&PS and Financial Services growth this quarter. H&PS continues to be growth that we’ve seen in public service and the work that we’ve been doing during – not just only, but clearly led by a lot of the work that we’re doing within the COVID space. And then in financial services, we’re pleased that we do have strength in our banking and capital markets, and that’s a statement globally as it relates to – particularly – and not only in our business in Europe, but all over, including North America. So very strong performance in both of those, and we expect that to continue. Julie Sweet: Yes. And it’s the things that are – it’s cloud, right. It’s – there is a big movement to cloud. It’s digital experience. It’s more like the example I gave in BBVA. It’s basically all the trends that we’ve talked about are playing out really across industry and financial services is one of the less – more moderate impacted industries, and they are investing. Bryan Bergin: Thank you very much. Julie Sweet: Okay, great. Well, thank you again for joining today. And thank you again to all of our incredible people around the globe. And as always, I just want to end by thanking our shareholders for your continued trust in us. May everyone stay well and healthy. 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 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.

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  • 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%.