ACN.US, the global consulting and outsourcing giant, suffered a sell-off of about 7 per cent in two trading days after Accenture PLC, the global consulting and outsourcing giant, reported results for the fourth quarter of fiscal 2020 last week, Zhitong Financial APP learned. According to the results, revenue fell 2 per cent year-on-year to $10.8 billion, or 1 per cent in euro terms, in line with management forecasts of a 3 per cent decline to 1 per cent growth.
However, diluted earnings of $1.70 per share were three cents below analysts' consensus expectations and, more importantly, the company's management guidance for the next quarter was not encouraging, triggering the sell-off.
Limited to a fixed pattern
The company's management blamed Accenture PLC's revenue decline on a two-percentage-point drop in reimbursable travel costs because of the obvious consequences of restricting consulting travel during public health events. Among Accenture PLC's market segments, revenue in North America, its largest market, fell slightly by 1 per cent to $5.2 billion. Performance in growth markets also fell 1 per cent to $2.2 billion, while revenues from European operations fell 5 per cent to $3.4 billion.
The results by business are a clearer reflection of the challenges the company currently faces. Of its five business categories, only health and public services grew in the previous quarter, which could be expected during health events. Revenue from the business rose 11 per cent to $2.1 billion, according to the data. Revenue from the rest of the business, which covers a wide range of economic areas, fell slightly during the comparable period.
In the fourth quarter, however, Accenture PLC's quarterly bookings reached the second-highest level of $14 billion in history. In response, Accenture PLC CEO Julie Sweet said the company's flexibility during health events and its relationship with "world leaders and ecosystem partners" gave it the advantage of achieving a record $50 billion bookings in fiscal year 2020.
However, bookings are only a forward-looking indicator that measures the value of committed contract sales. In terms of actual revenue in fiscal year 2020, the figure rose 4 per cent to $44.3 billion in local currency terms, still slightly below the 5-7 per cent growth envisaged by management at the start of the year.
Similarly, looking ahead, Accenture PLC expects revenue growth in the first quarter of 2021 to decline by 3%, the same as in the same period in fiscal year 2020. The local currency is expected to grow by only 2% to 5% for the whole of this year.
There is no doubt that public health events have limited Accenture PLC's ability to revive his first-tier business because the source of Accenture PLC's outsourcing and consulting revenue depends on demand from many businesses around the world. On this week's earnings call, while praising the growth in technology and life sciences sales, the company's CFO K.C.McClure acknowledged the following: "as we expected, we are seeing continued pressure from customers in severely affected industries, including tourism, retail, energy and high-tech industries including aerospace, defense and industry. Although the performance of these industries varies, this group accounts for more than 20% of our total revenue and is declining. "
Several reasons why Accenture PLC is still worth investing
Although investors are disappointed by this, Accenture PLC still maintains some attractive features. First, Accenture PLC's business model continued to generate cash flow in the fourth quarter of last year-Accenture PLC generated an impressive $3 billion in free cash flow in the past three months. And the company has a strong balance sheet. At the end of the quarter, the company's paper working capital was $5.1 billion, while long-term debt was just $54 million.
Accenture PLC said that in view of the company's huge cash flow generation capacity, it will continue to adopt an approach that is beneficial to shareholders. Last year, the company returned $5 billion to shareholders in the form of a $2 billion dividend and about $3 billion in share buybacks. In addition, Accenture PLC announced this week that he would raise his quarterly dividend by 10 per cent to 88 cents a share, a dividend yield of 1.6 per cent based on current share prices. Management expects free cash flow in the coming year to be between $5.7 billion and $6.2 billion, enough to pay for dividend growth and provide share buybacks on a similar scale as in 2020.
On the earnings call, executives revealed that the consulting giant was expected to return to normal growth in the second half of 2021-unless the global economy suffered "another macroeconomic shock".
Therefore, as we welcome the arrival of the vaccine at some point in 2021, it is believed that Accenture PLC will re-push up the annual revenue growth momentum from single digits to low double digits, and that any early signs of acceleration will help push up its share price.