Accenture earnings warning spreads doubt

14 Jan 2004

Despite reporting solid first quarter results and promising record new orders in the next quarter, big five technology consultancy Accenture has warned that earnings in the second quarter of fiscal 2004 may be as much as 22pc below analysts’ expectations.

Earnings in the second quarter are likely to be impacted by charges related to disposing of real estate, other fixed assets and consolidating operations in the US and UK of between US$75m and US$100m. It is not clear yet how the consolidation may impact the company’s 500 workers in the Republic of Ireland.

Net revenues for the first quarter increased 11pc to US$3.26bn, compared with US$2.93bn in fiscal Q1 2003. Operating income for the first quarter was US$507m, representing 15.5pc of net revenues, compared with US$429m last year.

Gross profit as a percentage of revenues (gross margin) was 34.1pc in the first quarter, compared with 39.4pc year ago. The company said the decline reflects a continuing shift in its business mix towards outsourcing, which has lower gross margins particularly during the first year of new contracts. The tighter margin also reflects ongoing price pressures and lower than expected margins on three contracts within Accenture’s Communications and Hi-tech operating group, which reduced consolidated gross margins for the quarter by US$50m. This indicates that all is not well within the big five marketplace and despite a concerted move towards outsourcing shows that big five operators have to work a lot harder to get bang per buck.

Accenture’s total cash balance at the end of November was US$2.3bn, down from US$2.4bn a year ago. Operating cash flow was US$126m for the first quarter, compared with US$198m last year.

Commenting on the results and indicating his feelings on the year ahead, Accenture chairman and CEO Joe Forehand said: “We are encouraged by signs of economic recovery in many parts of the world. We are seeing good business opportunities and are pleased with our strong new bookings, particularly in outsourcing. New bookings for the first quarter were US$5.05 bn, our third highest quarter ever, with outsourcing new bookings of US$2.98bn and consulting new bookings of US$2.07bn.

“Our priority for the balance of the year will be to stay focused on execution. With our utilisation improving and with growth in our billable workforce, we can be more selective about the opportunities we pursue and how we price our services. In addition, we are committed to further improving our contract management and operating disciplines.

“At the same time we will continue to focus on executing the three growth platforms of our business strategy: scaling business consulting, extending our leadership in systems integration and technology, and accelerating our efforts in business process outsourcing. In every aspect of our business, we will continue to be relentless in delivering the value to our clients that enables them to address the challenges they face and become high-performance businesses,” Forehand said.

By John Kennedy