Annex Newsflash 2005-22                                    July 7, 2005



Analysis of Accenture's Third Quarter FY05 Results 

Smashing Records

Record Quarterly Revenues - Up 11%, Diluted EPS - Up 38%, Put Accenture Results Among the Best in IT Industry

PHOENIX, July 7 - Accenture continues to smash quarterly records on its way to a strong fiscal year finish (Aug 31).  In its latest three-month period (ended May 31), the company reported the highest quarterly revenues in its history ($4.1 billion), an 11% increase over the same period a year ago.  

The net profit was up 45% to $305 million (up 38% in terms of diluted EPS to $0.51 per share), slightly exceeding Wall Street's expectations.

Not surprisingly, therefore, the Accenture shares shot up over five points in after-hours trading to $23.38, following the release of its third quarter results.  But that still put them slightly below the level they were trading most of the day today.  Only minutes before the close of regular trading something spooked investors, and the stock dropped over six points.  Now those who sold on an evidently false rumor probably wish they had not.  Knee-jerk reactions can sometimes hurt not just knees but also pocketbooks.

Business Segment Analysis

Geographies.  Meanwhile, the company achieved a U.S. dollar growth across all three of its geographic units, and in all five of its vertical segments.  The fastest growing market continues to be Accenture's biggest - Europe, a continent on which several other vendors, including IBM, have stubbed their toes lately. 

The business on the Old Continent, which accounted for more than half of Accenture's business in the third quarter ($2.09 billion), surged by 17% in U.S. dollars, and by 10% in local currency.  That's a slowdown from the explosive growth in Accenture's second quarter (see "Accenture: Roaring Ahead," Apr 2005), but it is still a much higher rate of growth than that of most of its competitors.

"We've taken five market share points from our competitors," said Bill Green, Accenture's CEO, in a teleconference with analysts that followed the earnings release after the markets closed today.  And the trend is likely to continue.

"The place is buzzing with activity," said Steve Rohleder, Accenture's COO, in a teleconference that followed the earnings release, in reference to the pipeline of new contract opportunities.  He noted that his company's results in Germany, one of the "problem children" of other major global IT vendors, were particularly strong (double digit growth in both U.S. dollars and local currency).  "The U.K., Spain, Italy and Netherlands also reported good growth," he said, as did some of the smaller European countries, such as Belgium.

The Americas region, of which the U.S. is by far the biggest part, reported a 5% revenue increase in the third quarter (up 4% in constant currency).  The U.S. dollar growth in the Asia/Pacific area, Accenture's smallest, slowed to only 2% (flat in constant currency).

Accenture also pursued aggressively the "offshoring" of its work.  The company now has about 19,000 employees in India, China and the Philippines - the three principal beneficiaries of this relatively new IT trend.  Rohleder, the COO, said he expected this number to grow to 30,000 to 50,000 over the next three years.

Industries.  Partly as a result of such globalization of work, Rohleder noted that three of the company's five vertical operating units recorded operating profit growth of 40% or more.  Overall, Accenture had an enviable 16.5% operating margin in the third quarter, up 17% from the corresponding period a year ago.

The financial sector grew the fastest in the latest period (up 21% in U.S. dollars; up 16% in constant currency).  It was followed by Products and Resources which increase by 15% and 12% respectively in U.S. dollars, and by 11% and 7% respectively in constant currency.  The Government and Communications & High Tech sector revenues increased by 5% and 2% respectively in U.S. dollars (up 2% and 1% in local currency).

New Contract Sales.  New contract sales were also up over the corresponding period a year ago to $4 billion.  Consulting bookings rose by 18%, while outsourcing increased by 15%. 

Since the consulting work represents a much bigger (61%) share of the revenues, and an even greater share of the company's profits, its resurgence bodes well for the company's future revenues and profits.

Besides, the company has already closed two large deals in the fourth quarter (meaning last week!) whose combined revenues are likely to be about $1.1 billion. On Thursday (June 30), Accenture was selected by the State of Texas for an $840 million contract dealing with Medicaid and food stamps.  The following day, the company received a 10-year, $431 million award to design, build, run and maintain the U.S. Army's new financial system.

Not a bad start for an otherwise relatively slow period (summer).

Business Outlook

"I feel very good about our business," said Green, the CEO, in conclusion of the conference with analysts, before enumerating again Accenture's achievements in the third quarter and the current fiscal year.

Translated into facts and figures, this should translate into about a 13% revenue growth for the full fiscal year 2005 (to about $15.5 billion), and a diluted EPS of $1.52 to $1.55.  It should also connote a free cash flow of $1.45 billion to $1.65 billion, and new contract sales of around $18 billion.  

Taken in the aggregate, such fiscal year 2005 results would put Accenture among the best in the global IT industry, if not at the very top.

Annex Clients: Click here for our FY05 Forecast for Accenture

Happy bargain hunting!

Bob Djurdjevic

For additional Annex Research reports, check out... 

2005 IT: Accenture: Smashing Records (July 2005); Merrill's New Bull (EDS) (May 2005);  IBM Trumps Trump (May 2005);  Tweaking Big Blue (May 2005); Hurd's First RBI (May 2005); Dell Rings the Bell (May 2005); Stock Buybacks: The Phantom Is Back (May 2005); EDS Misfiring on All Cylinders (May 2005);  HP Surges, Dell Slumps; Lenovo Completes IBM Deal (May 2005);  Capgemini Jettisons Healthcare in N.A. (Apr 2005); HP: From India to Poland (Apr 2005); IBM: Slammed and Dunked (Apr 2005); Hurd Advice: Up Mount Market Cap (Apr 2005); Accenture: Roaring Ahead (Apr 2005);  Fujitsu Unveils New Servers (Mar 2005);  EDS Executive Suite; HP's New CEO (Mar 2005);  An iSeries Revival (Mar 2005); EDS Booster Club Fees Rise (Mar 2005);  An Upside-Down View (Mar 2005);   The Worst of Both Worlds (Mar 2005);   Octathlon 2005: Accenture Wins (Mar 2005);  IBM Global Services: Smaller, Shorter - Better? (Mar 2005);  IBM 5-yr Forecast: Quality over Quantity (Mar 2005); Rumor Lifts EDS', Fujitsu's Shares (Mar 2005); Capgemini: Turning the Corner (Feb 2005);  IBM Servers to Grow Again (Feb 2005);  Carly's Fickle Fans (Feb 2005);  CSC: Gearing Down on Purpose (Feb 2005);  EDS: Grossly Overpriced Stock (Feb 2005);  IBM Historical Update: 2004 Shot in the Arm (Feb 2005); New HeadTurners Series #1 (Feb 2005); IBM: A Crescendo Finale! (Jan 2005); Accenture: Strong Finish, Better Start (Jan 2005); Annex Coverage 2004: IT Services Dominate (Jan 2005)

2004 IT: EDS: The Titanium Stock (and other Wall Street tales) (Dec 2004); IBM PC: Good Riddance (Dec 2004); Fujitsu: Recovery Continues (Nov 2004);  IBM Server Renaissance (Nov 2004);  HP Hits Home Run (Nov 2004); Capgemini: Revenue, Stock Soars (Nov 2004); EDS: Jordan's Swan Song? (Nov 2004);  To Russia with Love and $ (Oct 2004); IBM: Slow Quarter No Longer (Oct 2004); Accenture: Revenues, Profits Up, Stock Down (Oct 2004); Capgemini: A Takeover Target? (Oct 2004); Sellout of America (Oct 2004); Spy Wars (Sep 2004); Outsourcing Boomerang (Sep 2004); EDS to Cut Up to 20,000 More Jobs (Sep 2004); Capgemini Stock Plummets on Unexpected Loss (Sep 2004); HP Savaged by Wall Street (Aug 2004); Moody's Lowers the Boon on EDS (July 2004); HP: Delivering Value Horizontally (June 2004); Accenture: Revving Up a Notch (June 2004); Beware Your CFO! (May 2004)IBM: Changing of the Guard (May 2004); Capgemini: Texas-size Home Run (May 2004); Following the Money (May 2004);  EDS: On a Wink and a Prayer (Apr 2004); HPS Wins by a Nose! (Octathlon 2004); Accenture: Burning the Track (Mar 2004);  IGS: "Crown Jewel" Restored? (Mar 2004); HP: Still No Cigar (Feb 2004); Cap Gemini: Another, Smaller Loss (Feb 2004); CSC: Good Quarter Gets Boos (Feb 2004); EDS: "Hot Air Jordan" Flaunts Flop as Feat (Feb 2004); IT Industry: Whither Goeth It? (Jan 2004); Cronyism Is Alive and Well at EDS" (Jan 2004)

Or just click on and use "financial engineering" or similar  keywords.

Volume XXI, Annex Newsflash 2005-22
July 7, 2005

Bob Djurdjevic, Editor
(c) Copyright 2005 by Annex Research, Inc. All rights reserved.

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