Accenture’s Q1 profit under pressure from rising costs

Accenture [ACN] is expected to report a 20.74% earnings rise and 20.8% year-on-year revenue increase when it reports its first-quarter (Q1) earnings on 16 December. The company follows a financial year ending 31 August.

Zacks analysts forecast that the Ireland-based multi-national professional services IT and consulting company will report EPS of $2.62 and quarterly revenue of $14.21bn. This optimism was boosted by government contracts awarded to the company to design software to fight the spread of COVID-19 and help businesses upgrade in a post-pandemic world.

“Accenture has been steadily gaining traction in its outsourcing as well as consulting businesses, backed by high demand for services that can improve operating efficiencies and save costs,” they say.

“Considering the growing need for cloud-based applications and software, Accenture’s investments in this space are likely to propel long-term growth.”

But with 624,000 employees worldwide, making Accenture the largest employer in its field, the increasing cost of talent in the labour-intensive consulting sector is one factor among others that may slow it down, they warn.

“Stiff competition and pricing pressure, remain as the major headwinds. Higher talent costs, due to a competitive talent market, has also been hurting Accenture’s prospects.”

 

 

Full year estimates

ACN's full-year Zacks Consensus Estimates are calling for earnings of $10.12 per share up 15% year on year and revenue of $57.4bn up 13.59%.

This week’s report follows a strong fourth quarter (Q4), in which revenue grew 24% year-over-year to $13.4bn and a 29% rise lifting EPS to $1.70. In September, CEO Julie Sweet said the company had a “strong momentum across all dimensions of our business, across geographic markets, industries and services… gaining significant market share with 40 basis points of operating margin expansion, demonstrating, yet again, our ability to grow profitably and at scale”.

Accenture’s strong policy on acquisitions ($4.2bn in Q4 and 26 acquisitions in the past four years) and partnerships (the most recent a collaboration with enterprise automation software firm Uipath [PATH]) will continue to cement its hold over competitors. Sweet also noted Accenture’s ability to react quicker than its rivals in a fast-moving digital world, particularly with its new operating system, as the world moved to the cloud. “We created Accenture Cloud First to capitalise on this momentum,” Sweet said, “bringing together all of our capabilities from migration to cloud-native development, data AI, industry talent, and change.”

“[The company has] strong momentum across all dimensions of our business, across geographic markets, industries and services… gaining significant market share with 40 basis points of operating margin expansion, demonstrating, yet again, our ability to grow profitably and at scale” - Accenture CEO Julie Sweet

 

 

Share price

 Accenture’s share price has seen a sure and steady rise since the start of the pandemic, from $155.11 in March 2020 to $377.72 at close on December 13, with no signs of sudden jolts along the way. This contrasts with rivals including IBM (a six-month 18% drop to $122.58 since June); and Tata Consultancy [TCS] (6% down to INR 3609.65 since September.

Analysts appear to have faith that Accenture’s steady climb will continue, with an overwhelming consensus out of of 27 polled rating it a ‘buy’ (18 ‘buy’, one ‘outperform’, seven ‘hold’), according to CNN Business. Twenty-two analysts offering 12-month price forecasts have a median target of 384.5.

“Accenture’s cloud and interactive business segments are booming as an increasing number of companies move their networks to hybrid cloud services or enhance their online user experience, says InvestorPlace author Tezcan Gecgil. “In addition, its Industry X segment, which helps factories and plants to utilise software and connected devices, is gaining traction from the expansion of the industrial IoT market.”