Accenture the IT consulting firm lowered its earnings and revenue growth outlook for the fourth quarter below Wall Street estimates on Thursday on worries that rising economic uncertainty will keep IT budgets tight and prevent businesses from signing fresh contracts. Shares of the company were down 2% in trading before the bell.
The demand for IT services is very frail in the United States. Last month even Cognizant Technology Solutions said it faced pressure in signing smaller contracts due to softer discretionary spending. India’s outsourcing giant Tata Consultancy Services said in April that U.S. recovery hadn’t materialized as expected and had, in fact, worsened.
Accenture earnings report
Accenture Plc (CAN), -1.90% shares fell 2.5% in premarket trades Friday, despite positive financial results of beating its earnings and revenue targets. Accenture said its fiscal first quarterly earnings rose to $2 billion, or $3.08 a share, from $1.82 billion, or $2.78 a share, in the year ago quarter. Revenue rose 5% to $15.7 billion. Wall Street analysts expected Accenture to earn $2.92 a share on revenue of $15.58 billion, according to consensus estimates compiled by FactSet. Looking ahead, Accenture said it expects second quarter revenue of $15.2 billion to $15.75 billion, compared to the analyst view of $15.62 billion. Analysts on average expect revenue of $16.35 billion, according to Refinitiv data. Wall Street wasn’t thrilled to hear the new sales outlook from management. For fiscal 2023, Accenture raised its earnings per share estimate to a range of $11.20 a share to $11.52 a share, compared to the analyst estimate of $11.41 a share. The company’s earlier 2023 profit projection was $11.09 a share to $11.41 a share. Accenture continues to expect revenue growth of 8% to 11% for 2023.
Thursday’s drop was sparked by a lukewarm reception for Accenture’s latest, financial performance report and updated sales outlook.
Accenture announced before the market opened that revenue had risen 5% for the selling period that ran through late May. That result marked a slowdown compared to the prior quarter, which featured 9% higher sales. Yet profitability continued expanding modestly, with adjusted profit margin ticking up to 16.3% of sales from 16.1% a year ago.
In a press release, management highlighted Accenture’s success at attracting huge contracts, which the company defines as bookings of over $100 million of spending per quarter. Accenture counted 26 such customers in the most recent period. “The strength of our strategy to be our clients’ transformation partner of choice continues to resonate,” CEO Julie Sweet told investors.
Yet investors were more interested in management’s slightly reduced outlook for the fiscal 2023 year.
What is future expectation
The company still sees profit margin landing at roughly 14.2% of sales, but the sales outlook is modestly weaker. Revenue growth will land between 8% and 9%, executives said, down from the prior forecast of between 9% and 10%.
Given its relatively strong bookings, profit margin, and customer engagement, this update is nothing that should shake investors’ bullish thesis for this growth stock. Accenture is expecting slightly slower growth this year, but it is still expanding its business, boosting profitability, and attracting big new clients. The stock price might remain volatile, but the business is forging ahead at a stable rate.
