The FINANCIAL — Accenture reported financial results for the third quarter of fiscal 2017, ended May 31, 2017, with net revenues of $8.9 billion, an increase of 5 percent in U.S. dollars and 7 percent in local currency over the same period last year.
Diluted earnings per share were $1.05, including the impact of a pension settlement charge of $510 million, pre-tax, or $0.47 per share, in connection with the company’s previously disclosed termination of its U.S. pension plan. Excluding this charge, diluted earnings per share were $1.52, compared with $1.41 for the third quarter last year, according to Accenture.
Operating income for the quarter was $865 million, or 9.8 percent of net revenues, including the $510 million pension settlement charge. Excluding this charge, operating income was $1.38 billion, or 15.5 percent of net revenues, compared with $1.31 billion, or 15.5 percent of net revenues for the third quarter last year.
New bookings for the quarter were $9.8 billion, with record consulting bookings of $5.2 billion and outsourcing bookings of $4.6 billion.
Pierre Nanterme, Accenture’s chairman and CEO, said, “We are pleased with our strong third- quarter financial results. We delivered 7 percent revenue growth in local currency and gained significant market share, with broad-based growth across most dimensions of our business. I am particularly pleased with our new bookings of $9.8 billion, which demonstrate that our services and capabilities continue to be highly differentiated in the marketplace.
“We are clearly benefiting from the diversity of our business – from an industry, geographic and capability standpoint – which drives durability in our financial performance. At the same time, our focused investments in high-growth areas, such as digital, cloud and security services, are further differentiating Accenture and enabling us to grow ahead of the market. We remain very well-positioned to continue driving profitable growth and delivering value for our clients and shareholders.”
Financial Review
Revenues before reimbursements (“net revenues”) for the third quarter of fiscal 2017 were $8.87 billion, compared with $8.43 billion for the third quarter of fiscal 2016, an increase of
5 percent in U.S. dollars and 7 percent in local currency. Net revenues for the quarter reflect a foreign-exchange impact of approximately negative 2 percent, compared with the negative 2.5 percent impact we had previously assumed. Adjusting for the actual foreign-exchange impact, the company’s guided range for quarterly net revenues was approximately $8.70 billion to $8.95 billion. Accenture’s third quarter fiscal 2017 net revenues were in the upper end of this adjusted range.
Consulting net revenues for the quarter were $4.82 billion, an increase of 4 percent in U.S. dollars and 6 percent in local currency compared with the third quarter of fiscal 2016.
Outsourcing net revenues were $4.05 billion, an increase of 6 percent in U.S. dollars and 7 percent in local currency over the third quarter of fiscal 2016.
Diluted EPS for the quarter were $1.05, compared with $1.41 for the third quarter last year. The pension settlement charge had a negative $0.47 impact on EPS in the third quarter of fiscal 2017. Excluding this charge, EPS for the quarter were $1.52, an increase of $0.11 from the third quarter last year. The $0.11 increase in EPS on an adjusted basis reflects:
a $0.07 increase from higher revenue and operating results;
a $0.02 increase from higher non-operating income; and
a $0.02 increase from a lower share count.
Gross margin (gross profit as a percentage of net revenues) for the quarter was 32.8 percent, compared with 31.9 percent for the third quarter last year. Selling, general and administrative (SG&A) expenses for the quarter were $1.53 billion, or 17.3 percent of net revenues, compared with $1.38 billion, or 16.4 percent of net revenues, for the third quarter last year.
Operating income for the quarter was $865 million, or 9.8 percent of net revenues, compared with $1.31 billion, or 15.5 percent of net revenues, for the third quarter of fiscal 2016. Excluding the $510 million pension settlement charge, operating income for the third quarter of fiscal 2017 was $1.38 billion, or 15.5 percent of net revenues.
The company’s effective tax rate for the quarter was 19.4 percent, compared with 26.5 percent for the third quarter last year. Excluding the impact of the pension settlement charge, the effective tax rate for the third quarter of fiscal 2017 was 26.6 percent.
Net income for the quarter was $705 million, compared with $950 million for the third quarter last year. Excluding the after-tax impact of the pension settlement charge, net income for the third quarter of fiscal 2017 was $1.02 billion.
Operating cash flow for the quarter was $1.79 billion, and property and equipment additions were $136 million. Free cash flow, defined as operating cash flow net of property and equipment additions, was $1.66 billion. For the same period last year, operating cash flow was
$1.59 billion; property and equipment additions were $94 million; and free cash flow was $1.50 billion.
Days services outstanding, or DSOs, were 41 days at May 31, 2017, compared with 39 days at Aug. 31, 2016 and 41 days at May 31, 2016.
Accenture’s total cash balance at May 31, 2017 was $3.4 billion, compared with $4.9 billion at Aug. 31, 2016.
New Bookings
New bookings for the third quarter were $9.8 billion and reflect a negative 1 percent foreign- currency impact compared with new bookings in the third quarter last year.
Consulting new bookings were $5.2 billion, or 53 percent of total new bookings.
Outsourcing new bookings were $4.6 billion, or 47 percent of total new bookings.
Net Revenues by Operating Group
Net revenues by operating group were as follows:
Communications, Media & Technology: $1.75 billion, compared with $1.71 billion for the third quarter of fiscal 2016, an increase of 3 percent in U.S. dollars and 4 percent in local currency.
Financial Services: $1.87 billion, compared with $1.80 billion for the third quarter of fiscal 2016, an increase of 3 percent in U.S. dollars and 6 percent in local currency.
Health & Public Service: $1.55 billion, compared with $1.54 billion for the third quarter of fiscal 2016, an increase of 1 percent in U.S. dollars and 2 percent in local currency.
Products: $2.43 billion, compared with $2.16 billion for the third quarter of fiscal 2016, an increase of 13 percent in U.S. dollars and 15 percent in local currency.
Resources: $1.25 billion, compared with $1.22 billion for the third quarter of fiscal 2016, an increase of 2 percent in U.S. dollars and 4 percent in local currency.
Net Revenues by Geographic Region
Net revenues by geographic region for the third quarter of fiscal 2017 were as follows:
North America: $4.12 billion, compared with $4.02 billion for the third quarter of fiscal 2016, an increase of 3 percent in both U.S. dollars and local currency.
Europe: $3.04 billion, compared with $2.95 billion for the third quarter of fiscal 2016, an increase of 3 percent in U.S. dollars and 9 percent in local currency.
Growth Markets: $1.70 billion, compared with $1.47 billion for the third quarter of fiscal 2016, an increase of 16 percent in U.S. dollars and 13 percent in local currency.
Rotation to “the New”
Net revenues from “the New” – digital-, cloud- and security-related services – were approximately $4.7 billion, a significant increase over the third quarter of fiscal 2016. In the third quarter, “the New” accounted for approximately 50 percent of total net revenues for the first time
– a key milestone for Accenture.
Returning Cash to Shareholders
Accenture continues to return cash to shareholders through cash dividends and share repurchases.
Dividend
On May 15, 2017, a semi-annual cash dividend of $1.21 per share was paid on Accenture plc Class A ordinary shares to shareholders of record at the close of business on April 13, 2017 and on Accenture Holdings plc ordinary shares to shareholders of record at the close of business on April 10, 2017.
Combined with the semi-annual cash dividend of $1.21 per share paid on Nov. 15, 2016, this brings the total dividend payments for the fiscal year to $2.42 per share, for total cash dividend payments of approximately $1.57 billion.
Share Repurchase Activity
During the third quarter of fiscal 2017, Accenture repurchased or redeemed 4.9 million shares, including 4.6 million shares repurchased in the open market, for a total of $589 million. This brings Accenture’s total share repurchases and redemptions for the first three quarters of fiscal 2017 to 16.9 million shares, including 13.7 million shares repurchased in the open market, for a total of $1.99 billion.
Accenture’s total remaining share repurchase authority at May 31, 2017 was approximately $3.7 billion.
At May 31, 2017, Accenture had approximately 646 million total shares outstanding, including 618 million Accenture plc Class A ordinary shares and minority holdings of 28 million shares (Accenture Holdings plc ordinary shares and Accenture Canada Holdings Inc. exchangeable shares).
Business Outlook
Fourth Quarter Fiscal 2017
Accenture expects net revenues for the fourth quarter of fiscal 2017 to be in the range of $8.85 billion to $9.10 billion, 5 percent to 8 percent growth in local currency, reflecting the company’s assumption of a negative 0.5 percent foreign-exchange impact compared with the fourth quarter of fiscal 2016.
Fiscal Year 2017
Accenture’s business outlook for the full 2017 fiscal year now assumes that the foreign- exchange impact on its results in U.S. dollars will be negative 1 percent compared with fiscal 2016; the previous foreign-exchange assumption was negative 2 percent.
For fiscal 2017, the company now expects net revenue growth to be in the range of 6 percent to 7 percent in local currency, compared with 6 percent to 8 percent previously.
In May 2017, the company recorded a settlement charge of approximately $510 million, pre-tax, in connection with the termination of its U.S. pension plan. This settlement charge will reduce the company’s fiscal 2017 diluted GAAP EPS by approximately $0.47 and its full-year GAAP operating margin by approximately 150 basis points. The company previously expected the settlement charge to be approximately $425 million, pre-tax; to reduce its fiscal 2017 diluted GAAP EPS by approximately $0.39; and to reduce its full-year GAAP operating margin by approximately 120 basis points.
Accenture now expects diluted GAAP EPS to be in the range of $5.37 to $5.44, including the $0.47 impact of the pension settlement charge. Excluding the settlement charge, the company now expects EPS to be in the range of $5.84 to $5.91. The company previously expected diluted EPS to be in the range of $5.31 to $5.48 on a GAAP basis and $5.70 to $5.87 on an adjusted basis.
Accenture now expects GAAP operating margin for the full fiscal year to be approximately 13.3 percent, including the estimated 150 basis-point impact of the pension settlement charge. Excluding the settlement charge, the company now expects operating margin to be approximately 14.8 percent – an expansion of 20 basis points from fiscal 2016. The company previously expected operating margin to be in the range of 13.5 percent to 13.7 percent on a GAAP basis and 14.7 percent to 14.9 percent on an adjusted basis.
For fiscal 2017, the company continues to expect operating cash flow to be in the range of $4.6 billion to $4.9 billion; property and equipment additions to be $600 million; and free cash flow to be in the range of $4.0 billion to $4.3 billion.
Accenture now expects the GAAP annual effective tax rate to be in the range of 20.5 percent to 21.5 percent. Excluding the impact of the settlement charge, the company now expects its annual effective tax rate to be in the range of 22.5 percent to 23.5 percent. The company previously expected its annual effective tax rate to be in the range of 21 percent to 23 percent on a GAAP basis and 22 percent to 24 percent on an adjusted basis.
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