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Analysis of Accenture's First Quarter Fiscal 2005 Business Results

Strong Finish, Better Start

Business Performance, Stock Market Finally in Synch

WESTERN AUSTRALIA, Jan 7 - Accenture finished the calendar 2004, or started its fiscal 2005, if you prefer, with its strongest quarter on record.  Revenues for the quarter ended November 30 were $3.73 billion, compared with $3.26 billion, up 14% in U.S. dollars year-over-year, or up 9% in local currency.  Both outsourcing and consulting revenues jumped in double digits (by 15% and 14% respectively).

“Our net revenues were the highest of any quarter in Accenture’s history, with growth in all three geographic regions, and U.S. dollar growth in all five operating groups," said Bill Green, Accenture's CEO in a statement. “We are particularly pleased with the growth in our consulting revenues, the strongest we’ve seen since we became a public company.”

Consulting revenues were $2.4 billion, or 64% of total, while the outsourcing business accounted for $1.3 billion, or 36% total.

Accenture's earnings growth was not too shabby, either.  Its first quarter EPS (earnings per share) of $0.32 represented a 22% jump after adjustments for one-time benefits and charges.  More importantly when it comes to Wall Street, it exceeded the analyst expectations.

So the Accenture shares surged nearly five points on a down day for the market as a whole, finally bringing the company's strong business performance in line with the stock market reaction (see Revenues, Profits Up, Stock Down, Oct 2004, for a contrasting example). 

Business Segment Analysis

Accenture's fastest dollar growth came in its biggest geographic region.  Europe's revenues surged by 24% (up 12% in constant currency), while the Asia/Pacific business jumped by 23% (up 19% in local currency).

Revenue growth in America's was 3%, up from only 1% in the earlier quarter.

As for its vertical performance, Accenture saw the largest revenue growth in its financial services unit, which rose 25% to $807 million, and in its products group, which gained 23% to $862 million. Its communications and technology revenue added 11% to $973 million, government services rose 10% to $524 million and resources increased 2% to $564 million. 

The company said new contract sales totaled $4.03 billion during the latest quarter, of which $1.96 billion came from the consulting business, and $2.07 billion from outsourcing activities.  The growth of the outsourcing business has slowed as new customers are leaning toward smaller contracts to reduce the risk involved in allowing other companies to manage their operations. 

"While outsourcing will continue to deliver solid growth to our business this year it is likely to grow at a lower overall rate than it did in 2004," Green told investors. "It's a tough place to fight it out in the marketplace."

Gross margins, or gross profit as a percentage of net revenue, fell to 33% percent from 34% percent last year, due to higher compensation and short-term labor shortage. But the company said it did not expect the trend to continue.

Business Outlook

The recent wave of software mergers is expected to bring new business, the Accenture CEO suggested in a teleconference that followed the earnings release. "Any time you have change, that creates an opportunity for someone to help you," said Green.  

Accenture said it plans to add 15% to 20% more people this fiscal year to its 103,000 existing payroll.  The company has also revised upward its outlook for the full fiscal year 2005.  Accenture now expects net revenue growth in the range of 13% to 16% in U.S. dollars, and earnings per share between $1.41 to $1.46.

All this adds up to the most bullish outlook we have heard from Accenture executives ever since the company went public in 2001.  And Wall Street evidently got the hint.  Finally.

Happy bargain hunting!

Bob Djurdjevic

For additional Annex Research reports, check out... 

2005 IT:  Accenture: Strong Finish, Better Start (Jan 2005);

Accenture:  Revenues, Profits Up, Stock Down (Oct 2004); Revving Up a Notch (June 2004)Burning the Track (Mar 2004);  "Strong Finish" (Sep 2003); Light at End of Tunnel (July 17, 2003), Boom Amid Gloom and Doom (Oct 10, 2002)Analysis of Accenture's 2001/1Q02 Results (Jan 11, 2002)Analysis of Stock Market Reaction to WTC (Sep 26, 2001)Annex Research’s Analysis of Accenture's 2000 results (Apr 11, 2001)

Or just click on and use "financial engineering" or similar  keywords.

Volume XXI, Annex Newsflash 2005-01
January 7, 2005

Bob Djurdjevic, Editor
(c) Copyright 2005 by Annex Research, Inc. All rights reserved.
e-mail: annex@djurdjevic.com

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