Accenture Betting On Health IT, Smart Grids

Accenture (NASDAQ:ACN) turned in another subdued performance in the recently announced Q3 results. Even though their results were better than the Street’s expectations, both revenues and margins fell over the year.

Revenues for the quarter came in at $5.15 billion compared to $6.10 billion earned a year ago. EPS also fell to $0.68 from $0.74 a year ago. The market was expecting earnings of $0.64 per share.

During the quarter the company repurchased or redeemed 10 million shares for a total of $283 million.

By segment, outsourcing revenues grew 3% over the year in local currency terms and fell 9% over the year in dollar terms to $2.2 billion. Consulting revenues fell 20% over the year to $3 billion and fell 9% in local currency terms.

Accenture is seeing a reasonable leve of activity in the systems integration space, where clients are continuing to make selective investments in ERP and CRM applications. The need for cost reduction among clients drove bookings in applications, infrastructure and BPO outsourcing spend.

Accenture cited three main reasons for the revenue declines. First, the caution exercised by their clients in launching new, large consulting commitments and preferring to migrate to “more phased and flexible approach to contracting work.” Second, some clients slowed the pace of projects and deferred decisions pertaining to expansion of scope.

Finally, Accenture too was subject to pricing pressure. With labor cost arbitrage losing its sheen, there is now a marginal benefit in shifting to lower-cost resources at reduced price levels. Additionally, the consolidation of clients, especially in the financial services sector, had an impact on the company’s outsourcing revenues.

There was some positive activity toward the end of the quarter, but the company remained cautious of the future and are going to address two focus areas in the coming months. First, Accenture plans to improve its core business of consulting through improving their market offerings through strengthening their industry skills, programs and capabilities.

They have already aligned their value propositions to the market’s needs by reducing cost to serve and introducing  offerings such as those around cloud computing and SaaS in the systems integration and technology space. It has invested in new emerging technology areas like health IT and in its leading position in smart grid technology, webification and digitization. Even within outsourcing, Accenture is the leader and is known for its offerings in infrastructure outsourcing and remote-managed services.

The second focus area is new growth initiatives. For instance, it is combining its public service and health service businesses, which offer huge growth potential. Additionally, it is driving geographic expansion and have redoubled efforts across strategic and new markets. The company is optimistic on account of its double-digit growth in some parts of Europe such as the Netherlands, Denmark and Norway.

Accenture has assembled its capabilities around several high-growth technology areas such as mobility, analytics, digital and cloud, where they have launched Mobility Operated Services, Information Management Services and Digital Management Services. It is strengthening its core through tie-ups with alliance partners to be implementation partners for clients as they move to next-generation computing.

As of now, acquisitions don’t seem to figure in Accenture’s focus areas. I am hopeful that the company will look at SaaS enabled BPO acquisitions of companies such as Sabrix, InsideView, Salary.com etc

Going forward, Accenture raised their EPS outlook for the full year to $2.67 to $2.70 from a previous range of $2.60 to $2.67. For the current quarter, the company is looking at revenues in the range of $5.0-$5.2 billion. It expects to end the fiscal with nearly $23 billion-$25 billion worth of bookings.

The stock is trading at $33.13 with a market capitalization of nearly $12.15 billion.