<%@ LANGUAGE=VBScript %> <% Set asplObj=Server.CreateObject("ASPL.Login") asplObj.Protect Set asplObj=Nothing %> Analysis of Accenture's 3Q07 business results (June 28, 2007)

Annex Bulletin 2007-26                             June 28, 2007

Excerpts from CONFIDENTIAL CLIENT edition (Annex clients click here)

Recent...

Burning the Track - Firing on all cylinders, Accenture raises forecast  [Annex clients click here]

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IT SERVICES

Updated 6/29/07, 10:30AM EDT, adds Market Update...

Analysis of Accenture's Third Quarter Fiscal 2007 Results

Burning the Track

Accenture Again Firing on All Cylinders, Raises Outlook

INDIANAPOLIS, June 28 - It seems highly appropriate that we should be reporting on Accenture's third quarter fiscal 2007 business results from the city that is home to the nation's most famous car race - "Indianapolis 500."  For, the fourth largest competitor is burning the track in the global IT services race.  Revenues and profits are both up in the latest period, as are the new contract bookings and cash flow.

Third quarter revenues surged by 15% to $5 billion, a new third quarter record, while net profit rose by 8% (excluding the 3Q06 write-offs) to $345 million.  And the company is firing on all cylinders.  All Accenture geographies and all vertical lines of business grew in the quarter, most in double digits.  As a result, the company has already surpassed the $19 billion revenue mark at the trailing 12 month-run rate (click on right thumbnail chart to enlarge).

[snip]

Wall Street Applauds... Tepidly

Accenture also raised its profit outlook for fiscal 2007 to $1.94 to $1.96 earnings per share, up from the previous EPS guidance of $1.88 to $1.93.

[chart]

No wonder Wall Street also applauded Accenture's latest results, pushing its shares after-hours trading up by about two points to $43.8.  The stock has been on a sustained upward march ever since the early March when its third fiscal quarter started (see the chart).

[snip]

Business Segment Analysis

Geographies.  The Asia/Pacific region has once again been the story of the quarter.  The area is bursting at the seams, it seems.  :-)  Third quarter revenues surged to $457 million, up 44% from the year before (up 37% in local currency - see the right chart).  It was the fifth consecutive quarter of double digit growth in Asia/Pacific, noted Steve Rohleder, Accenture's COO.  

The region's growth "is anchored in Japan and Australia," he noted during the Q&A.  

[snip]

Global Delivery Capability Expanding Rapidly

Accenture's global delivery work force is expanding at a torrid pace.  As of May 31, it was a 63,000-strong army of IT professionals spread from the Americas, to Eastern Europe, to India and to the Philippines.  That's about 40% of the company's 158,000 people.  And the growth is unrelenting.

[snip]

Outlook

As previously noted, Accenture has raised its outlook for fiscal 2007 EPS to a range of $1.94 to $1.96.  The company also expects the revenue growth to be close to 12% in local currency, and the new bookings in the range of $22 billion to $24 billion.  In short, the growth is accelerating (see the right chart).

And with a free cash flow of between $1.9 billion and $2.1 billion, Accenture seems poised to deliver another banner year, when the current fiscal year ends on August 31.

"We have a unique worldwide operating model," summed up Green, the CEO.  "We believe we will continue to widen our lead" (over the competition).

[snip]

"That's all she wrote," we're afraid, for those of you who are NOT Annex Research clients, who are now reading the complete Annex Bulletin, along with many tables and charts that back up our forecast.  

Qualified media and friends of Annex may request a TEMPORARY User ID and Password by clicking here and explaining why they wish to have access to this particular Annex Bulletin.  Or call Bob Djurdjevic at 602-824-8111 (cell) to promise not to copy it or otherwise republish it.

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Happy bargain hunting!

Bob Djurdjevic

Market Update

INDIANAPOLIS, June 29 - Ah, what a difference a day can make.  Or make it a night.  Having had the night and a part of the morning to absorb the good third quarter news, investors promptly sold off the Accenture stock despite a generally strong market.  Worse, all of Accenture's major competitors' shares were thriving this morning.

[chart]

As of about 10:30AM EDT, the market was up about 70 points, EDS, CSC, HP, BearingPoint and ACS shares were rising between one and two points, while Accenture's stock declined by over 1.5% for no logical reason that we could discern.  And it's not even Friday the 13th.  

The only thing we can think of is that maybe Wall Street thinks Accenture has peaked?  "It doesn't get better than this?"  Well, check out our 2005 report's opening paragraph... (see "A Whopper of a Quarter," Oct 2005), and then take a look at the above charts to see what happened after "it could not get better than this."

For additional Annex Research reports, check out... Annex Bulletin Index 2007 (including all prior years' indexes)

Or just click on SEARCH and use "company or topic name" keywords.

Volume XXIII, Annex Bulletin 2007-26
June 28, 2007

Bob Djurdjevic, Editor
(c) Copyright 2007 by Annex Research, Inc. All rights reserved.
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