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Accenture’s recent cloud and digital investments pay off in Q2; but margin outlook overshadows

The consulting and outsourcing giant has spent more than US$3bn on 70-or-so acquisitions in the digital and cloud spaces over the past few years

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Operating margins are now expected to be flat on last year’s due to higher spending and lower profits in the healthcare and public service business

Accenture Plc (NYSE:CAN) shares slipped on Thursday, despite the consulting and outsourcing giant topping forecasts with its quarterly profit and revenue and raising its full-year guidance.

The Dublin-based group reported a rise in net income to US$863.7mln in the three months ended February 28, from US$838.8mln in the year-ago period.

Boss “very pleased” with numbers

Excluding a one-time, US$137mln charge related to the recent US tax changes, Accenture earned US$1.58 per share (Q2 2017: US$1.33). Wall Street analysts had been looking for US$1.49.

Net revenue jumped 15% to US$9.59bn in the period – ahead of the US$8.32bn it generated last year and higher than the average analyst estimate of US$9.31bn.

The outperformance was largely down to better-than-expected sales growth in both the consulting and outsourcing business, while Accenture also benefited from investments in its digital and cloud services.

In fact, the company spent more than US$1bn last year to boost its offerings in these divisions, which it calls ‘The New’, as it looks to better compete with the likes of IBM (NYSE:IBM) and Cognizant Technology Solutions Corp (NASDAQ:CTSH).

Pierre Nanterme, Accenture’s chairman and chief executive, said: “We are very pleased with our strong financial results for the second quarter.

“We continue to benefit from the substantial investments we are making to scale our leadership positions in high-growth areas including digital, cloud and security services, which together now account for more than 55% of total revenues.”

Margin pressures overshadow results

However, Accenture also flagged margin pressures in the year ahead, which overshadowed the second quarter results.

The firm now expects fiscal 2018 operating margin – a profit as a percentage of revenue – of 14.8%.

That’s in line with fiscal 2017, but lower than the 10- to 30-basis-point expansion it had previously suggested.

There was some better news in terms of outlook for investors though, with Accenture raising its net revenue growth forecasts to 7-9% for 2018, up from 6-8%.

It also increased its adjusted earnings per share guidance to US$6.61-US$6.70, from US$6.48-US$6.66.

Accenture shares are down 6.5% to US$151.50 in afternoon trading.

Quick facts: Accenture

Price: 253.44 USD

NYSE:ACN
Market: NYSE
Market Cap: $160.7 billion
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