Accenture Q3-2009, Big Change From Prior Quarter – Investors Love It

In March 2009, Accenture (NYSE: ACN) delivered a shock to investors when it reported revenues and EPS for Q2-2009 under what investors were generally expecting and then dialed down expectations. For Q2-2009, Accenture’s EPS was 63 cents, 1 cent better than consensus expectations of 62 cents, but revenue of $5.27 billion was far less than what Wall Street was expecting at $5.53 billion. At that time, Accenture shares sank $4.60, or 14.4 percent, to $27.36 in morning trading on Friday, March 27, 2009. Management’s Q2-2009 commentary was sobering, and talked about sudden and dramatic shifts in clients and projects.

See our blog post on Q2-2009 earnings: http://bigfouralumni.blogspot.com/2009/03/accenture-indicates-profound-and.html
Things seem to have turned around quite well for the company this quarter Q3-2009. Yesterday Accenture reported EPS of 68 cents, a full 4 cents better than consensus of 64 cents and revenues of $5.15 billion, just shy of analyst consensus expectations of $5.2 billion. Investors were pleased with these results and the stock marched up 5% after hours on Thursday to almost $33 dollars, and staying at $32.79 mid-day Friday June 26, 2009.
Investors seem to be now happy with ACN, and Accenture’s stock has come back smartly to levels in early 2008 recovering much of the double digit% loss in March. The machine rolls on at Accenture, here are some notable factoids:

Q3-2009 cash was $4.0 billion, up from $3.6 billion in Q2-2009
Q3-2009 operating margin improved to 14.2%, new bookings $6.6 billion (consulting $3.2B and outsourcing $3.6B)
Q3-2009 revenues were impacted negatively by 12% from same period as the dollar strengthened substantially in this time
Q3-2009 consulting revenues of $3B decreased 20% in U.S. dollars, but outsourcing revenues of $2.2B decreased only 9%
Q3-2009, Accenture was smart enough to purchase or redeem about 10 million shares for $283 million from a combination of founders and open market purchases, at an average price of just $28.45 per share, that action already producing shareholder value of $450 million.

It is clear that outsourcing is getting ahead of consulting, as clients seek real cost savings and stay away from getting advice.

If we dig through the earnings call transcript, the key seems to lie in CEO Bill Green’s comments below, which is a marked shift from the defensive & inability-to-predict position in the previous quarters’ call. Reading between the lines, Accenture has shifted quickly to match the current external environment, focusing on its top clients, recognizing that the work is out there and executives just have to chase it down despite caution and deliberation at clients.
According to CEO Bill Green, “I think we put a lot of work looking at our diamond clients and looking at the initiatives that they have. We have done a lot of work looking at the leaders of our client companies in terms of the constant of people in the market place and the confidence has improved a lot and yet people are still thoughtful and cautious. I think it is going to be an interesting question about when you cross the line into 2010 calendar what really happens. So the difference between our first two quarters and our last two quarters could be dramatically different. I guess the other thing is there is still a lot of conversation and activity out there. So I think it is working its way through the system and as a result it is sort of hard. You can see the first couple of quarters and say this thing is going to get off to a slower start but it has the potential to ramp because as I said the work hasn’t gone anywhere. The needs are there. The work is there. The people that have the global agendas around consistent operating platforms and performance improvement things are all there. People have been taking small bites and I think somewhere along the line here we are going to get back into the bigger, more transformational type assignments.”
Thanks to http://seekingalpha.com/article/145458-accenture-ltd-f3q09-qtr-end-05-31-09-earnings-call-transcript for transcript details.
And Accenture laid out some forecasts:

Q4-2009 revenues $5-5.2 billion, with (8)% FX impact
2009 full year new bookings $23-25 billion, operating margin 13.4-13.7%, annual effective tax rate 27-29%
2009 full year EPS $2.67 to $2.70, operating cash flow $2.65 to 2.85 billion

And so, as we have said earlier, the machine rolls on, nothing seems to stop the onward push of this extremely well managed company. We have always admired Accenture, and in these worst of times to pull off such a quick turnaround just shows its tremendous global depth and breadth, acumen and competitiveness. Investors saw some of this light yesterday!