Hans Wagner's  Instablog

Accenture is a global management consulting, technology services and outsourcing company. As the global economy recovers, the strategy of many companies will be to find ways to improve their operations without having to hire more people. This is an opportunity that Accenture and the other service firms such as Hewlett Packard (HP), IBM and Dell with the Perot Systems (PER) acquisition are positioned to handle.

With approximately 177,000 employees in more than 120 countries, the company generated net revenues of $21.58 billion for the fiscal year ended Aug. 31, 2009. For 2009, new bookings were $23.9 billion, exceeding revenues. Consulting bookings for fiscal 2009 were $12.78 billion and outsourcing bookings were $11.12 billion. These new bookings in the fourth quarter and for the full fiscal year show demand for the company’s services remain solid. The company has $4.5 billion in cash with no debt.

 

Consulting revenue has fallen, down 19% from a year ago due to pricing pressures. In addition, clients are cautious about initiating large projects as they favor smaller programs that have more immediate payback. This is likely to continue for the next quarter, as clients continue to manage their expenditures more carefully.

 

Outsourcing revenues actually grew on a local currency basis, though at a slower rate. Clients are slower to expand current contracts and when they do, they are seeking to deploy lower cost resources with lower pricing. Furthermore, clients in the Financial Services sector are more inclined to cancel contracts as they struggle with strategy changes and in some cases consolidation.

 

Margins actually expanded for the year, coming in at 31.7% for 2009 vs. 30.7% in fiscal year 2008. This is a good indication the firm is keeping costs in line with revenues, as Accenture is sustaining their profitability during the recession. Their utilization of people (people working on billable engagements) came in at 86% in the fourth quarter, rising from 83% in the third quarter. This is an excellent number that contributes to the solid margins the firm is able to achieve.

 

Should the global economy keep improving, we should expect consulting and outsourcing revenues to turn up in Accenture’s second quarter of their fiscal year or the beginning of 2010. Keep in mind there is a several month delay from booking a new engagement before revenue starts flowing.

 

The strategy of many companies is to keep raising their productivity by finding better ways of operating their business. In doing so, they will consider the services of firms like Accenture, which bodes well for them in 2010.

 

As a services firm the future revenues come from new bookings. In the latest quarter, new bookings of $5.15 came in just above revenues of $5.14 for the quarter indicating the company is not easting into its prior bookings to sustain revenues. As long as bookings remain above revenues, the firms will be able to sustain itself. Once bookings start to climb, Accenture will see its revenues turn up shortly thereafter.

For the fiscal year 2010, Accenture expects new bookings to be in the range of $23 billion to $26 billion. Management expects the net revenue growth rate for the full fiscal year 2010 to be in a range of a 3% decline to a 1% increase in local currency over fiscal 2009. This range reflects the anticipated decline in revenues in the first half of fiscal 2010 year-over-year. It also reflects the aggregate effect of outsourcing contract cancellations in fiscal 2009, which will show up in as 2% fall in net revenue growth for fiscal year 2010 local currency net revenue. Earnings per share for fiscal 2010 should be in the $2.64 to $2.72. For the first quarter, revenues should be in the range of $5.3 billion to $5.5 billion.

 

The company is looking for operating cash flow to be in the range of $2.39 billion to $2.59 billion, capital expenditures to be $290 million, and free cash flow to be in the range of $2.1 billion to $2.3 billion.