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Accenture Can Be Near-Shore Leader

Posted on Wednesday, Jun 30th 2010

After five successive quarters of revenue declines, Accenture’s (NYSE:ACN) Q3 revenues finally grew, by 8% over the year to $5.57 billion to exceed the market’s projected revenues of $5.46 billion. On a constant currency basis, revenues grew 4% over the year. EPS for the quarter of $0.73 was significantly higher than the market’s expected $0.69.

By segment, Consulting revenues of $3.22 billion grew 9% in U.S. dollars and 4% in local currency, signifying a slow but sure recovery of the global markets. Outsourcing revenues of $2.35 billion grew 7% in U.S. dollars and 3% in local currency. As Eric Savitz rightly puts it, this is a sure sign that corporate tech spending is on the mend.

By region, revenues from the Americas grew 11.0% over the year. Asia Pacific revenues grew 16% over the year in U.S. dollars and 3% over the year in local currency terms. Europe, Middle East, and Africa revenues grew 4.0% over the year in U.S. dollars and were flat in local currency.

Accenture continued to keep a tight control on utilization and maintained the previous quarter’s 88% utilization rate in this quarter. A year ago, utilization stood at 83% for the quarter. But attrition for the quarter continued to increase and came in at 17% compared with 15% in the previous quarter and 8% last year. The company believes this trend to be a normal cycle at the end of a downturn.

Accenture is focusing its growth on three areas. The first is the core business, which includes the traditional consulting, technology, and outsourcing services. The second includes the company’s new initiatives and businesses such as analytics, digital marketing, mobility solutions, and new technology areas such as cloud computing and cyber security. Accenture also recently created a formal new software group to cater to its SaaS offerings and other software packages. Finally, the third area is geographic expansion across the globe; the company is already seeing strength in the emerging markets of China, Mexico, Africa, and the Middle East.

As part of this strategy, and building on the 2007 acquisition of MediaSenz, Accenture recently acquired CadenceQuest, a company that specializes in customer data and analytics for the retail sector. The acquisition will help Accenture to expand its existing portfolio of digital, marketing analytics, retail marketing, and merchandising solutions and platforms offered on the Accenture Interactive initiative. Accenture is looking to “deliver a comprehensive consumer-centric marketing capability” through the acquisition.

During the quarter, the company repurchased or redeemed approximately 11 million shares for $447 million at an average price of $41.97 per share.

Q4 revenues are projected to be $5.15 billion–$5.35 billion and fiscal revenues to grow negative 3.0% to positive 1.0%. The company projects EPS for the year to be in the lower half of its previously guided range of $2.61 to $2.69.

Last year, as in the current quarter, Outsourcing constituted 42% of Accenture’s revenues, a number surely expected to grow. Accenture already has outsourcing services specialized to address needs of various verticals such as insurance, airlines, utilities, and health administration, to name a few. Additionally, they provide high-value services through their KPO specialists to take care of clients’ research, structuring and trading activities. Evalueserve’s Alok Anand says that the high-end specialized services market alone is expected to be worth $15 billion by 2015. Further, Accenture already has delivery locations in over 40 countries located across the Americas, Europe, and Asia. Their core delivery centers include locations suitable for near-shore delivery such as those in Latin America, Canada, the United States and even the UK will help it address the growing demand for near-shore delivery models which help to address the rising concern of time zone management. I strongly believe that Accenture, with its capabilities of delivery network, services, and resources will be a big leader in the growing market. Meanwhile, the home-sourcing trend is another area that I would like Accenture to explore to help it grow while maintaining an attractive cost structure.

The stock is trading at $38.65 with a market capitalization of $27.87 billion. In April of this year it touched a 52-week high of $44.67.

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