Accenture plc (ACN) is scheduled to announce its first quarter 2012 results on December 15 after market close. There have been some changes in analysts’ estimates following the release of its fourth quarter 2011 results.
Fourth Quarter Recap
Accenture posted impressive fourth quarter earnings per share (EPS) of 66 cents, beating the Zacks Consensus Estimate of 63 cents. The company reported net revenue of $5.42 billion in the quarter, up 5.2% from $5.15 billion in the year-ago quarter and above the Zacks Consensus Estimate of $5.31 billion.
Reported revenue was within the company’s guided range and included a three percentage point negative impact from foreign currency. The meaningful growth in revenues was attributed to higher contribution from all its operating segments.
Accenture witnessed revenue growth across almost all of its operating groups, with Product revenues seeing the highest growth (up 13.0% annually). Communications & High Tech revenues grew 4.1%, while Financial Services revenues were up 9.6% year over year.
Revenues from Resources climbed 7.5% from the year-ago quarter. The improvement in these segments was partially offset by a 9.0% drop in the Health & Public Services group revenues.
Operating margin (as a percentage of net revenue) was 13.2% compared with 8.2% in the year-ago quarter. The improvement in operating margin was mainly due to a 14.9% year-over-year increase in sales and marketing expenses. The increase in selling expenses can also be credited to the implementation of the sales effectiveness model implemented earlier.
For the first quarter of 2012, Accenture expects net revenue in the range of $5.6 billion to $5.8 billion. This guidance includes a 5.0% negative foreign exchange impact. For fiscal 2012, the company expects net revenue growth in the range of 7.0% to 10.0%.
New bookings are expected to range between $25.0 billion and $28.0 billion. The company also expects operating margin to be between 13.6% and 13.7%, an annual tax rate of 28.0% to 29.0% and diluted EPS of $3.00–$3.08.
Agreement of Analysts
Out of the 16 analysts providing estimates for the first quarter, only one analyst downgraded estimates in the last 30 days. Again, for fiscal 2012, three analysts downgraded their estimates over the last 30 days. For fiscal 2013, two analysts downgraded their estimates in the last thirty days while no upward revision was witnessed. Therefore, there appears to be some moderate negative sentiment amon analysts.
Specifically, analysts are a bit concerned about the potential impact on demand given the prevailing uncertain economic conditions, sovereign debt issues in Europe (40.0% of net revenue) and decelerating growth in the Europe, Middle East and Africa (EMEA) region. Some analysts expect the impact to be modest and thus believe that demand will remain moderate in Europe, including ACN's consulting business.
Some analysts expect IT spending growth to be 3.0% in 2012, down from 5.0% projected for 2011. The downside is primarily due to the tough global macro backdrop. Additionally, based on the latest survey results, discretionary IT spending for services in the next six months is showing signs of weakening from its peak level in August.
Magnitude of Estimate Revisions
The Zacks Consensus Estimate for the first quarter of fiscal 2012 increased by 2 cents over the last 90 days while the same for fiscal 2012 moved up by 5 cents. However, for 2013 estimates moved down by 5 cents to $4.23 over a period of 90 days.
Accenture posted encouraging fourth quarter results, but business fundamentals are expected to be tempered in the upcoming quarter. Owing to lower demand as well as an unfavorable IT spending scenario and economic turmoil in Europe, the company’s business might suffer.
Moreover, recovery of the financial services sector is expected to take some time. Notwithstanding these headwinds, we are encouraged by the steady flow of new business from higher tech spending in 2011.
The company has a Zacks #4 Rank, implying a short-term Sell rating.