Accenture Plc (NYSE:ACN) reports preliminary financial results for the quarter ended November 30, 2014.
Accenture, a global management consultancy, technology services, and outsourcing company, reported an increase in revenue of 7% year-over-year when it announced earnings for the quarter ended on November 30, 2014. Earnings per Share (EPS) were $1.29, an increase of 12% over the same period last year.
The strong revenue performance led the company to raise its revenue forecast for fiscal 2015, as winning new contracts led to better than expected revenue and earnings. Challenges from managing the strong US dollar impacted performance in the quarter. Accenture gets more than half its revenue from outside the US.
- Summary numbers: Revenues of USD 8.43 B; Net earnings of USD 831.53 million; and Earnings per Share of USD 1.29.
- Gross margins narrowed from 32.80% to 32.44% compared to the same quarter last year, operating (EBITDA margins now 16.24% from 15.16%.
- Ability to declare a higher earnings number? Change in operating cash flowof 381.65% compared to same quarter last year better than change in earnings.
- Earnings growth from operating margin improvements as well as one-time items.
- Earnings per Share growth exceeded earnings growth.
The table below shows the preliminary results and recent trends for key metrics such as revenues and net income.
|Revenue Growth (Qtr YOY)||1.72%||0.99%||6.91%||9.86%||6.97%|
|Earnings Growth (Qtr YOY)||7.59%||-39.07%||0.87%||4.47%||10.60%|
|Return on Equity||55.47%||47.94%||54.80%||45.12%||54.08%|
|Return on Assets||18.02%||16.34%||19.60%||16.05%||18.71%|
Market Share Versus Profits
Companies sometimes focus on market share at the expense of profits or earnings growth.
Revenues vs. Earnings
Compared to the same quarter last year, Accenture’s change in revenue trailed its change in earnings, which was 10.60%. The company’s performance this period suggests a focus on boosting bottom-line earnings. While the revenue performance could be better, it is important to note that the quarterly change in revenue was among the highest in the peer group thus far. Also, for comparison purposes, revenue changed by 0.92% and earnings by 18.62% compared to the immediate last quarter.
Earnings Growth Analysis
The company’s gross margins showed no year-on-year improvement. In spite of this, the company’s earnings rose, influenced primarily by the improvement in operating margins (EBITDA margins) from 15.16% to 16.24%. For comparison, gross margins were 31.96% and EBITDA margins were 15.15% in the quarter ending September 30, 2014.
Gross Margin vs. EBITDA Margin
Gross Margin Trend
Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. CapitalCube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.
Gross Margin vs. Working Capital Days
Accenture’s modest decline in gross margins were offset by some improvements on the balance sheet. The management of working capital, for example, shows progress. The company’s working capital days have fallen to 39.51 days from 41.69 days for the same period last year. This leads Capital Cube to conclude that the modest gross margin decline is not altogether bad.
Cash Versus Earnings – Sustainable Performance?
Accenture’s year-on-year change in operating cash flow of 381.65% is better than its change in earnings. This suggests that the company might have been able to declare a higher earnings number. The change in operating cash flow is better than the average of the results announced to date by its peer group.
Operating Cash Flow Growth vs. Earnings Growth
The company’s earnings growth has also been influenced by the following factors: (1) Improvements in operating (EBIT) margins from 13.29% to 14.25% and (2) one-time items. The company’s pretax margins are now 14.29% compared to 13.89% for the same period last year.
Pretax Margin vs. EBIT Margin
EPS Growth Versus Earnings Growth
Accenture’s change in Earnings per Share of 12.17% compared to the same quarter last year is better than its change in earnings of 10.60%. However, this change in earnings is better than the peer average among the results announced to date, suggesting that the company is gaining ground in generating profits from its competitors.
EPS Growth vs. Earnings Growth
Accenture Plc operates as an investment holding company with interest in providing management consulting, technology and outsourcing services. The company’s business is structured around five operating groups, which together comprise nineteen industry groups serving clients in major industries around the world, namely, Communications, Media and Technology, Financial Services, Health and Public Service, Products and Resources. The Communications, Media & Technology operating group serves the Communications, Electronics & High Tech and Media & Entertainment industries. The Communications industry group serves wireless, cable and satellite communications and service providers. The Electronics & High Tech industry group serves the following industries: information and communications technology, software, semiconductor, consumer electronics, aerospace and defense, and medical equipment. The Media & Entertainment industry group serves the broadcast, entertainment, print, publishing and Internet/social media industries. The Financial Services operating group serves the Banking, Capital Markets and Insurance industries. The Banking industry group works with retail and commercial banks, mortgage lenders and diversified financial enterprises. The Capital Markets industry group helps investment banks, broker/dealers, asset management firms, depositories, exchanges and clearing and settlement organizations by providing consulting and outsourcing services to improve business performance. The Insurance industry group helps property and casualty insurers, life insurers, reinsurance firms and insurance brokers improve business processes, modernize their technologies and improve the quality and consistency of risk underwriting decisions. The Health & Public Service operating group serves healthcare payers and providers, as well as government departments and agencies, public service organizations, educational institutions and non-profit organizations around the world. The Health industry group works with healthcare providers, such as hospitals, public health systems, policy-making authorities, health insurers (payers) and industry organizations and associations around the world to improve the quality, accessibility and productivity of healthcare. The Public Service industry group helps governments position themselves for the future by transforming the way they deliver public services and engage with citizens. The Products operating group serves a set of increasingly interconnected consumer-relevant industries. The Products operating group comprises the following industry groups: Air, Freight & Travel Services, Automotive, Consumer Goods & Services, Industrial Equipment, Infrastructure & Transportation Services, Life Sciences and Retail. The Air, Freight & Travel Services industry group serves airlines, freight and logistics companies, and travel services companies, including hotels, tour operators, rental car companies and cruise operators. The Automotive industry group works with original equipment manufacturers and suppliers. The Consumer Goods & Services industry group serves food and beverage, alcoholic beverage, household goods, personal care, tobacco, fashion/apparel, agribusiness and consumer health companies around the world. The Industrial Equipment industry group serves the industrial and electrical equipment, automotive supplier, consumer durable and heavy equipment industries. The Infrastructure & Transportation Services industry group serves companies in the construction, infrastructure management (ports, airports, seaports and road-tolling facilities) and mass transportation industries. The Life Sciences industry group works with pharmaceutical, medical technology and biotechnology companies. The Retail industry group serves a wide range of companies, including supermarkets, hardline retailers, mass-merchandise discounters, department stores, and fashion and other specialty retailers. Resources operating group serves the chemicals, energy, forest products, metals and mining, utilities and related industries. The Resources operating group comprises the following industry groups: Chemicals, Energy, Natural Resources and Utilities. The Chemicals industry group works with a wide cross-section of industry segments, including petrochemicals, specialty chemicals, polymers and plastics, gases and agricultural chemicals, among others. The Energy industry group serves a wide range of companies in the oil and gas industry, including upstream, downstream, oil services and clean-energy companies. The Natural Resources industry group serves the metals, mining, forest products and building materials industries. The Utilities industry group works with electric, gas and water utilities around the world to respond to an evolving marketplace. The company was founded in 1989 and is headquartered in Dublin, Ireland.