Accenture plc — Form 10-Q Summary
Business context and reporting period
Accenture plc, a global consulting and outsourcing services provider, reported unaudited results for the quarter and nine months ended May 31, 2012, in fiscal 2012. Comparisons are with the corresponding 2011 periods unless noted.
Key financial metrics
| Metric | Quarter ended May 31, 2012 | Nine months ended May 31, 2012 |
|---|---|---|
| Net revenues, excluding reimbursements | $7.155 billion; up 6% reported and 9% in local currency | $21.026 billion; up 12% reported and in local currency |
| Operating income / margin | $1.061 billion / 14.8%, versus $949 million / 14.1% | $2.931 billion / 13.9%, versus $2.548 billion / 13.5% |
| Net income attributable to Accenture plc | $689 million, versus $628 million | $1.975 billion, versus $1.666 billion |
| Diluted earnings per share | $1.03, versus $0.93 | $2.96, versus $2.48 |
| Gross margin | 33.1%, versus 34.4% | 32.0%, versus 32.8% |
For the nine months, net cash provided by operating activities was $2.549 billion, compared with $2.060 billion. Investing activities used $423 million and financing activities used $1.916 billion, including $951 million of cash dividends and $1.403 billion of share purchases. Cash and cash equivalents were $5.629 billion at May 31, 2012, versus $5.701 billion at August 31, 2011. Total outstanding debt was $5 million; available borrowing facilities totaled $1.647 billion, with $5 million borrowed and $159 million of letters of credit outstanding. Management said cash and expected operating cash flows should meet working-capital and investment needs for at least 12 months.
Material changes and business performance
- Outsourcing was the principal growth driver: third-quarter outsourcing net revenues rose 16% in U.S. dollars and 19% in local currency, while consulting revenue was flat in U.S. dollars and up 3% in local currency. For the nine months, outsourcing grew 18% reported and 19% in local currency; consulting grew 7%.
- Third-quarter net revenue grew in all operating groups in local currency. Asia Pacific grew 18%, the Americas 12%, and EMEA 4%; EMEA declined 1% in U.S. dollars. In the quarter, Financial Services operating income declined to $216 million from $262 million, while other operating groups reported higher operating income.
- Gross margin declined as payroll costs, pre-contract costs, holiday time, and investments in offerings and acquisitions weighed on results; higher contract profitability partly offset these pressures. Lower relative sales, marketing and administrative costs helped operating margin improve.
- Quarterly diluted EPS improved by $0.10; management attributed the increase to higher revenues and operating results and fewer weighted-average shares, partly offset by a higher tax rate. Nine-month diluted EPS increased by $0.48, also benefiting from a lower tax rate.
Outlook, commentary, risks and unusual items
- Management expected year-over-year revenue growth to moderate further in fiscal fourth-quarter 2012, particularly in consulting, with results varying across operating groups and geographies. Outsourcing demand remained strong; clients were cautious about starting large consulting commitments and were reducing or deferring some projects.
- Management expected fiscal 2012’s annual effective tax rate to be 27%–28%. No specific revenue or EPS guidance is provided in the filing excerpt.
- Management cited global economic and geopolitical uncertainty, particularly in Europe, and risks from foreign-exchange movements, competition, pricing, client demand, talent supply and retention, contract delivery, and government budgets. It estimated full-year revenue growth in U.S. dollars could be about 2 percentage points below local-currency growth if exchange rates stayed within recent ranges.
- Foreign-currency forward contracts not designated as hedges generated net losses of $116 million for the quarter and $201 million for the nine months; management said these were offset by foreign-currency gains on underlying exposures. Cash-flow hedge balances included a $43.6 million unrealized loss expected to be reclassified into earnings within 12 months.
- Acquisitions cost $174 million during the nine months, including a mortgage-processing services provider; acquisition-related goodwill was recorded. Reorganization liabilities were $266 million, primarily current. The company said final resolution of related tax disputes could result in payments exceeding recorded amounts.
- Management judged other litigation and regulatory matters not expected to materially affect results or financial condition. It also said potential payments under client indemnities and guarantees were assessed as immaterial overall, while some arrangements have no specified liability limit and their maximum exposure cannot be estimated.
Important facts for investors to verify
- Whether consulting demand and EMEA performance continued to weaken, and whether outsourcing growth remained broad-based.
- Whether gross-margin pressure from payroll and pre-contract costs eased, and whether operating-margin gains were sustainable.
- Actual fiscal 2012 revenue and tax-rate outcomes versus management’s commentary and tax-rate range.
- Cash generation, share repurchases and dividends relative to acquisition needs and the remaining $4.825 billion share-purchase authorization.
- Developments in reorganization-related tax disputes, foreign-exchange exposure, and client guarantee or indemnity contingencies.