Annex Bulletin 2008-19                            October 4, 2008

Recent...

Accenture's "Par Excellenture" Quarter(Blowout 4Q lifts Accenture over EDS to #3 spot in IT services world)

Just Say No to Greed 2! (Proverbial IT babies being thrown out with Wall St bathwater)

IT SERVICES

Updated 10/06/08, 4:30PM PDT

Analysis of Accenture's Fourth Quarter FY08 Business Results

Accenture's Quarter "Par Excellence"

Blowout 4Q Lifts Accenture over EDS to No. 3 in IT World; Bodes Well for Other IT Vendors' Third Quarter Results

SCOTTSDALE, Oct 4 – A blowout fourth quarter lifted Accenture over EDS in the latter company's fading moments (before being absorbed by HP) to the No. 3 position in the global IT services world.  Full fiscal year revenues were up 19% to $23.4 billion, while the net income surged 36% to $1.7 billion.  EDS's last annualized revenues were around $21 billion before the curtain dropped on its acquisition by HP.  This left Accenture in an undisputed No. 3 position, well ahead of Fujitsu and CSC, the No. 4 and No. 5 global IT services vendors.

It was truly another quarter "par excellence" for Accenture.  The company recorded record revenues ($6 billion) and new contract bookings ($7.7 billion) in addition to a 35% surge in net earnings. 

"We generated significant cash flow ($1 billion in the quarter), we have no debt and our balance sheet is rock solid," said Bill Green, Accenture's CEO, in a statement that accompanied the earnings release. He added that the fourth quarter "demonstrates our ability to deliver outstanding results even in challenging economic conditions."

And, while other companies are struggling to grow in the mid- to upper single digits, Accenture's revenue growth is accelerating (see the chart - right).  Furthermore, it is profitable growth.  Both gross and net margins are growing faster than revenues, the latter at double the top line rate of growth (left chart).

What's especially significant in a larger scheme of things, however, is that Accenture's explosive growth included two of the three months of the calendar third quarter 2008 (July-Aug; Accenture's year end is Aug 31).  So unless the wheels came off the IT demand wagon in September, these results bode well for the upcoming revenue and earnings announcements by IBM and other major IT vendors who report on the calendar year basis.

Meanwhile, Wall Street seemed too busy licking its financial wounds to pay much attention to Accenture's excellence, "Excellenture," as we dubbed it in Jan 2006.  The ACN stock got clobbered last week, along with share of other major IT firms (left chart).  And it is down since three months ago, despite its outstanding business performance (middle chart).  The latter is even less logical, and, in fact, is downright nonsensical, when you consider that Accenture shares have done more poorly than even the Dow Jones Industrials or HP's (right chart).  Guess that's the latest example of Wall Street throwing out babies with bathwater (also see "Big Blue Stock Sags on "No News" Days ").

Business Segment Analysis

Revenues by Industry.  All five industry segments reported double digit growth, both in the fourth quarter and for the full fiscal year:  

·         Communications & High Tech: Revenues of $1,4 billion, compared with $1,2 billion for the fourth quarter of fiscal 2007, an increase of 16% in U.S. dollars.  For the full year, they were $5.45 billion, compared with $4.6 billion for fiscal 2007, an increase of 18%.

·         Financial Services: Revenues of $1.25 billion, compared with $1.13 billion for the same period last year, an increase of 10% in U.S. dollars. For the full year, they were $5.0 billion, compared with $4,36 billion for fiscal 2007, an increase of 15%.

·         Products: Revenues of $1.55 billion, compared with $1.27 billion for the year-ago period, an increase of 21% in U.S. dollars.  For the full year, they were $6,1 billion, compared with $4.9 billion for fiscal 2007, an increase of 24%.

·         Government: Revenues of $731 million, compared with $640 million for the year-ago period, an increase of 14% in U.S. dollars.  For the full year, they were $2,871 million, compared with $2,561 million for fiscal 2007, an increase of 12%.

·         Resources: Revenues of $1.05 billion, compared with $843 million for the same period of fiscal 2007, an increase of 25% in U.S. dollars.  For the full year, they were $4 billion, compared with $3.2 billion for fiscal 2007, an increase of 22%.

Revenues by Geographies.  All three geographic regions also reported double digit revenue growth in the fourth quarter:

·         Americas: Revenues of $2,556 million, compared with $2,193 million for the fourth quarter of fiscal 2007, an increase of 17% in U.S. dollars.  For the full fiscal year, they were $9,726 million, compared with $8,483 million for fiscal 2007, an increase of 15%.

·         Europe: Revenues of $2,840 million, compared with $2,430 million for the fourth quarter of fiscal 2007, an increase of 17% in U.S. dollars.  For the full fiscal year, they were $11,546 million, compared with $9,534 million for fiscal 2007, an increase of 21%.

·         Asia/Pacific: Revenues of $603 million, compared with $488 million for the year-ago period, an increase of 24% in U.S. dollars. For the full fiscal year, they were $2,115 million, compared with $1,679 million for fiscal 2007, an increase of 26%.

Summary & Outlook

New bookings are perhaps the best tangible factor in gauging a service company's future growth.  Accenture's new contract sales for the fourth quarter were a record $7.67 billion.  Consulting new bookings were $3.63 billion, up 17% since a year ago, or 47% of fourth-quarter bookings.  Outsourcing new bookings were $4.04 billion, up 124%, or 53% of fourth-quarter bookings  

New bookings for the full fiscal year were a record $26.8 billion, an increase of 22% over fiscal 2007.  So the company has sold more than its one-year revenues in the last 12 months.  Which bodes well for its future growth.

So overall, all signs point upward at an accelerating rate.  The company has issued a rather conservative forecast about the current quarter and fiscal year 2009.  Perhaps that's why the stock market has still not given Accenture full credit for such a stellar performance in the last 12 months - the best revenue and earnings growth rates of any major IT company we follow.

Also check out...

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