Outsourcing: View from Accenture

The New Year doesn’t seem to be bringing any cheer to the market. Although the $20 billion consulting giant, Accenture (ACN), continued to beat the market’s expectations with its Q1 results, the company lowered its outlook for the coming year.

Revenues of $6 billion were in line with the market’s expectations and represented growth of 6% over the year while remaining sequentially flat. EPS of $0.74 was significantly higher than the Street’s expectation of $0.68 and grew by 23% over the year. Sequentially, EPS grew by 9%.

During the quarter, Accenture repurchased or redeemed 21.8 million shares for $690 million, of which 14 million shares were purchased on the open market.

The company’s Resources group continued to show substantial revenue growth of 16%, driven by strong consulting growth in natural resources, utilities and energy across all geographic regions. The Public Services operating group grew by 7% over the year.

Revenues from the Americas grew by 11% over the year. EMEA revenues remained flat in US dollar terms due to U.S. dollar appreciation. In local currency, EMEA revenue grew by only 4%, primarily on account of a decline in the U.K. Asia Pacific continued to grow substantially, by 22%.

Accenture expects growth to come from operational excellence, rapid and sustained cost management, and M&A execution. The company expects outsourcing to meet the increasing demand for cost savings. Besides continuing demand for standard BPO operations, the company is seeing demand for application outsourcing, improvement in IT effectiveness, and post-merger integration services. Since Accenture is anything but a plain vanilla outsourcer that relies on labor arbitrage, the company is very well positioned to meet these demands.

Accenture prioritized its operational focus during the year to manage supply and demand of resources in order to achieve the proper balance of skills in each market, improve SG&A and manage its cost structure through optimizing resource mix through subcontractors and consolidation.

For Q2, the company expects revenues of $5.45-$5.65 billion. The company revised down its outlook for the year from 9%-12% to 6%-10% growth. Annual bookings are expected to be $24-$27 billion with EPS of $2.78-$2.85.

Given that today’s market is looking for providers it has confidence in, instead of experimenting with new vendors, Accenture rightly feels that its activity in the outsourcing space will pick up. Last week’s Satyam debacle in India will add to its case. All of this prompts me to reiterate that its global delivery model and capabilities will stand the company in good stead.

The stock is currently trading at $33.44 and continues to be a good stock to hold.

Disclosure: None

Comments

[tipalia:]

did they say anything about their dividend? thank you for your article.

Jan 12 01:47 PM