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Accenture Facing Margin Pressure

Posted on Friday, Apr 25th 2014

According to IBIS World Research, the Information Technology Consulting industry has grown 2.2% over the past four year period from 2009 through 2013. The research firm estimates that The IT Consulting industry was worth $337 billion in 2013, growing by a modest 1.2% over the year.

Accenture’s Financials
Leading technology and management consulting services provider, Accenture, (NYSE: ACN) is also battling with this modest growth. For the recently ended quarter, Accenture’s results missed market forecasts as price pressures and economic conditions continued to take a toll on the industry.

Second quarter revenues grew 1% to $7.13 billion, missing the Street’s forecast of $7.21 billion. EPS of $1.03 was also short of the market’s projected earnings of $1.04 per share. However, their bookings show strength. During the quarter, bookings hit a record $10.1 billion, with outsourcing bookings at $5.5 billion.

Analysts believe that despite the strong bookings, the modest earnings growth reflects the increasing pricing pressure that Accenture is facing. Vendor consolidation in the industry and continued customer pressure to manage costs is hurting Accenture as it tries to build its market share.

By segment, outsourcing revenues grew 4% over the year to $3.43 billion while consulting revenues fell 1% to $3.7 billion. Within operating segments, revenues from Health & Public Services fell 1% over the year to $1.18 billion. Revenues from Financial Services and Products grew 4.0% to $1.56 billion and $1.75 billion respectively. Revenues from Resources segment fell 2% $1.22 billion while Communications, Media & Technology revenues were flat at $1.41 billion.

By region, revenues from the Americas, and EMEA grew 2% while APAC revenues reported a 7% decline over the year.

Among operating metrics, utilization levels were flat sequentially at 87%, but registered a decline over previous year’s 88%. Attrition increased from 11% a year ago to 12%. They ended the quarter with 289,000 employees.

Accenture expects their performance to improve in the coming quarters and they raised their full-year guidance of revenue growth from 2%-6% to 3%-6%. Earnings expectations also improved to $4.50-$4.62 a share, compared with earlier projected $4.44-$4.56 per share. For the current quarter, they projected revenues of $7.40 billion-$7.65 billion. The Street was looking for revenues of $7.55 billion this quarter.

Accenture’s Acquisitions
Accenture’s acquisition pace seems to have slowed down. During the last quarter, they announced the acquisition of Germany-based ClientHouse for an undisclosed sum. ClientHouse is a provider of and Veeva Solutions in Europe. They are a Cloud Alliance Partner and operate the longest-standing Salesforce training center in Europe. They also have a strategic alliance with Veeva Systems to offer cloud-based CRM solutions for life sciences and biotech sectors. Through the acquisition, Accenture will be able to expand their Salesforce offerings and grow their cloud services offerings to the life sciences and other industries.

Earlier this month, Accenture also announced a $30 million investment in mobile Application Performance Management (mAPM) solutions provider, Crittercism. Crittercism owns a platform that helps companies monitor their mobile app performance. Their customer list includes names like Netflix, LinkedIn, and Yahoo. Through the alliance, Accenture will be able to resell Crittercism’s mAPM solutions and will include their apps in the Accenture Application Factory to deploy with their customers worldwide.

Accenture’s stock is trading at $79.42 with a market capitalization of $50.3 billion. It touched a 52-week high of $85.88 in January this year.

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