On September 27th Accenture (ACN) reported its EPS after the close of trading. We saw that the company was able to overcome a weak macroeconomic environment during the Q4 2012 period and it recorded positive revenue growth of 2% in U.S. dollars and 9% in constant currency versus the prior year's comparable period. This was driven by continued strength in its outsourcing business and stable results in its consulting business. With the exception of weakness in its Financial Services Operating Group, Accenture saw strong operating income growth in its industry operating groups during the FY 2012 period. During the Q4 2012 period, the FSG overcame its declines in operating income achieved earlier in the year to generate the strongest operating income growth in Q4 2012, which offset weakness in the Health & Public Service operating group and the Communications, Media & Technology operating group. We previously entered into a long position earlier in the month and the results that Accenture posted have validated our conviction in the company.
Accenture saw its Q4 revenue increase by 2% year-over-year in the fourth quarter in reported U.S. dollar terms. We were cognizant of the fact that the strong U.S. dollar has been negatively impacting the results of multinational corporations and while Accenture was not immune to this, we were pleased that the company saw its revenue grow by 9% in local constant currency terms in the quarter. All three of its geographic regions saw at least 8% revenue growth in constant currency terms for the quarter. EPS declined by 3.3% due to a $57.5M tax charge due to the change in the geographic mix of income. For FY 2012 the company generated $27.9B in revenue versus $25.5B in 2011. Negative currency headwinds resulted in a 2% negative impact to the company's 2012 revenue. EPS for FY 2012 grew by 13.3% due to a 12% increase in net income and a reduction in shares outstanding.
Source: Accenture's Q4 2012 Earnings Release
Business Segment Overview
Accenture's Consulting Division's revenues were $3.74B and declined by 4% in U.S. dollars and increased by 2% in constant currency terms in Q4 2012 versus Q4 2011. The Consulting Division generated $4.3B in new bookings for the quarter and this represented 46% of the company's new bookings. For the year, the division saw $15.6B in revenues, an increase of 4% in U.S. dollars and 6% in constant currency terms versus 2011. New bookings were $16.6B for the year and the division saw soft financial performance in Q3 and Q4 2012 due to the challenging economic environment.
Accenture's Outsourcing Division's revenues reached $3.1B and increased by 10% in U.S. dollars and 18% in constant currency terms in Q4 2012 versus Q4 2011. The Consulting Division generated $4.9B in new bookings for the quarter and this represented 54% of the company's new bookings. For the year, the division saw $12.3B in revenues, an increase of 16% in U.S. dollars and 19% in constant currency terms versus 2011. New bookings were $15.6B for the year and the division saw continued strength and less volatility throughout the year in comparison to the Consulting Division.
Source: Accenture's Q4 2012 Earnings Release
Corporate Asset Management
Accenture continues to reward its shareholders by lavishing generous dividends and share repurchases net of employee stock issuance. In 2012, Accenture continues its ability to convert over 100% of its net income into free cash flows even when we take into consideration net acquisition costs. The only criticism we have about Accenture's liquidity position is that it is extremely liquid and has an ultra-ultra-ultra conservative financial profile in that its cash and cash equivalents represent 35% of the company's assets. The company's cash has risen from $3.3B in 2007 to $6.6B in 2012. We know that the company has incorporated as an Irish PLC in order to enjoy a lower corporate tax rate than the 35% plus state and local tax statutory rate it would face as a US domiciled corporation. Considering the tax ramifications of earnings repatriations and dividends, the one item of note that we would like to see increased clarity on is Accenture's cash holdings by geographic area.
Accenture spent nearly $640M in net share repurchases during the quarter and $1.644B for the year. Even though the company has increased the annualized per share dividend payments from $.30 in 2006 to $1.35 in 2012, the company still has an ultra-conservative balance sheet. Accenture's cash outlay of $951M for dividends in 2012 pales in comparison to its $6.6B cash position and unless there are issues with regards to jurisdictional taxation of earnings, profits and assets, we would have preferred to see Accenture increase its dividend more than the 20% that was announced recently. The company also has $30M in other liquid assets and $33K in interest bearing debt.
Source: Morningstar Direct
In conclusion, we're pleased with the performance of Accenture. We can see that it is a better performer in the outsourcing business than HP Services, Dell Services and Xerox ACS. We can also see that it is a stronger performer in the consulting business than its consulting peers. We believe Accenture will continue to shake off the weak macroeconomic environment in order to generate solid revenue and profit growth. We also expect the company to continue to rain cash on its shareholders through dividends and share repurchases. For investors worried about the impact of the European debt crisis, the U.S. Fiscal Cliff and the slowdown in growth in the BRIC countries, we believe that such investors would sleep better at night with Accenture in their portfolio.
Business disclosure: This article was written by an analyst at Saibus Research. Saibus Research has not received compensation directly or indirectly for expressing the recommendation in this article. We have no business relationship with any company whose stock is mentioned in this article. Under no circumstances must this report be considered an offer to buy, sell, subscribe for or trade securities or other instruments.
Disclosure: I am long ACN.