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

accenture building
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: 334.66 USD

Market Cap: $212.22 billion

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