Outsourcing: View From Accenture

The New Year doesn’t seem to be bringing any cheer to the market. Though the $20 billion consulting giant, Accenture, continued to beat the market’s expectations with its Q1 results, the company lowered its outlook for the coming year.

Revenues of $6 billion were in line with the market’s expectations and represented growth of 6% over the year while remaining sequentially flat. EPS of $0.74 was significantly higher than the Street’s expectation of $0.68 and grew by 23% over the year. Sequentially, EPS grew by 9%.

During the quarter, Accenture repurchased or redeemed 21.8 million shares for $690 million, of which 14 million shares were purchased on the open market.

The company’s Resources group continued to show substantial revenue growth of 16%, driven by strong consulting growth in natural resources, utilities and energy across all geographic regions. The Public Services operating group grew by 7% over the year.

Revenues from the Americas grew by 11% over the year. EMEA revenues remained flat in US dollar terms due to US dollar appreciation. In local currency, EMEA revenue grew by only 4%, primarily on account of a decline in the UK. Asia Pacific continued to grow substantially, by 22%.

Accenture expects growth to come from operational excellence, rapid and sustained cost management, and M&A execution. They expect outsourcing to meet the increasing demand for cost savings. Besides continuing demand for standard BPO operations, they are seeing demand for application outsourcing, improvement in IT effectiveness, and post-merger integration services. Since Accenture is anything but a plain vanilla outsourcer that relies on labor arbitrage, they are very well positioned to meet these demands.

Accenture prioritized their operational focus during the year to manage supply and demand of resources in order to achieve the proper balance of skills in each market, improve SG&A and manage their cost structure through optimizing resource mix through subcontractors and consolidation.
 
For Q2, they expect revenues of $5.45-$5.65 billion. They revised down their outlook for the year from 9-12% to 6-10% growth. Annual bookings are expected to be $24-$27 billion with EPS of $2.78-$2.85.

Given that today’s market is looking for providers it has confidence in, instead of experimenting with new vendors, Accenture rightly feels that their activity in the outsourcing space will pick up. This week’s Satyam debacle in India will add to their case. All of this prompts me to reiterate that their global delivery model and capabilities will stand them in good stead.

The stock is currently trading at $33.44 and continues to be a good stock to hold.

This segment is a part in the series : Outsourcing