Accenture (ACN, Financial) is a global management consulting, technology services and outsourcing company having presence in more than 120 countries. The company collaborates with clients to help them become high performance businesses and governments. The company released its fourth-quarter results for the quarter ended August 31 and for the 2014 fiscal year. Though the company’s results surpassed expectations, the current forecast for the fiscal year’s earnings per share fell short of analysts’ expectations. However, the revenue showed growth momentum driven mainly by the consulting and outsourcing business. Should investors remain invested in the company for the long term? What do the recent results indicate? Let’s read further to derive the answers.
A quick quarter recap
The company provides consulting services to large multinational technology firms such as International Business Machines (IBM, Financial), thus growing its outsourcing revenue hugely. For the final quarter of fiscal 2014, the revenue from outsourcing has jumped 15% to $3.8 billion. Also, the consulting unit registered net revenue growth by 6% to $4 billion on constant currency basis.
Overall, Accenture reported earnings of $701 million, up from $671 million in the prior year period. Earnings per share which includes income attributable to noncontrolling interests rose from $1.01 per share to $1.08 per share.
The earnings missed the analysts’ consensus by 0.02 per share, but the revenue that rose to $7.78 billion went above the company’s expectations of $7.4 billion to $7.7 billion for the quarter, and even met the analysts’ predictions of $7.62 billion.
Geographically, net revenue in U.S. rose 9% in U.S. dollars and 10% in local currency. The net revenue from the EMEA region comprising Europe, Middle East and Africa climbed 14% in U.S. dollars and 9% in local currency. In the Asia Pacific, revenues rose 3% in both U.S. dollars and local currency.
Outsourcing revenue is driving the sales chart
The outsourcing division contributes to around half of Accenture’s value. The division has outpaced the industry and has clocked over 7% year-over-year growth in past quarters. In the third quarter, the company booked $4.5 billion worth of new contracts, and the book-to-bill ratio was 1.2 during the quarter.
Similarly in the fourth quarter, the company booked $4.4 billion worth of new contracts, which represented 53% of the total new bookings in the quarter. Therefore, the outsourcing division clocked quite a considerable number of contracts to keep the trend of improvement alive.
Consulting business growing firm ground
Management and technology consulting remain vital drivers for Accenture’s current value, and have shown flat revenue due to two major factors – First, the business environment remains challenging as clients are shying away from discretionary IT spending, and, second, the company is booking mainly long-term contracts which take time to convert to revenue.
Poor economic data, particularly, from China and Europe tend to temper the global sentiment linked to the consulting line of business. Many analysts thus expected that the consulting orders would show a slowdown this quarter.
However, consulting new bookings were $3.9 billion, representing around 47% of the total new bookings in the quarter. And the revenues have also shown an upswing during the quarter, though there were several headwinds. Such positive growth seen in the consulting domain did soothe investors’ nerves to a considerable extent.
Cash position is firm, investors stay rewarded
To reward investors from the free cash generated this quarter standing at $1.55 billion, the company has announced a semiannual cash dividend of $1.02 per share on its Class A ordinary shares for shareholders of record on October 17. Also Accenture SCA will declare a similar dividend on its Class I common shares for shareholders of record as of close of business on October 14. Both the dividends represent an increase of $0.09 per share, or 10%, over the company’s previous semiannual dividend that was declared in March this year.
Remarkably, the company has also repurchased 8.2 million shares for a total of $658 million during the fourth quarter. This makes the overall repurchase for the entire fiscal year stand at 32.6 million shares for a total of $2.56 billion.
So, the company has been using its free cash to keep investors happy – in the entire year, Accenture returned $3.81 billion to shareholders, which includes $1.25 billion in cash dividends and $2.56 billion in share repurchases.
Last word
The company looks attractive from the investment standpoint since it has always taken care of increasing value for its stockholders and has continuously generated positive cash flow to reward investors. Pierre Nanterme, the company’s CEO, has said, “We have momentum in our business, and I am confident in our ability to continue driving sustainable, profitable growth and delivering value for our shareholders." Looking ahead the company expects to report the first quarter of fiscal 2015 with net revenue standing at a range between $7.55 billion to $7.8 billion, and the management is also upbeat on achieving the stated target. Let’ s see how the first quarter of 2015 fiscal year shapes up, but as of now Accenture does hold a lot of promise for the shareholders in the long-term.
