It has been well documented that companies maintaining continued success in public procurement, also enjoy more predictability in their cash flow, and are generally more financially stable in insecure times. As discovered in our 'Government Receivables as a Stock Market Signal' white paper, winning government contracts is also likely to have a positive impact on a company’s stock price.
Therefore, we thought it would benefit our readers if we offered them detailed analyses of the financial results these major government contractors achieve.
In Part 25 of our blog series, we will present you the latest results of Accenture.
Key Points:
* About12.5% of revenue comes from public sector customers;
* Revenues up 5% Y/Y in Q2 (2022 +22% Y/Y). 4-6% growth in USD expected for fiscal 2023;
* USD strength impact dropping from 6% initially expected to 3.5% in Q3;
* Q2 adjusted EPS of 2.69/share up 6% Y/Y. Full year range seen at $11.41-11.63/share, up 7.6% Y/Y;
* Net cash position of $6.2 billion. Free cash flow of $8-8.5 billion expected in 2023. Inorganic growth targeted at 2%.
Accenture Q2 Fiscal 2023 Results Overview
Despite being based in Ireland, Accenture derives 46.8% of its revenues from North America, followed by Europe at 33.5% and Growth Markets (Asia Pacific, Latin America, Africa and the Middle East) at 19.6%
Accenture delivers professional services in five main segments, called Industry groups. The company has a fiscal year ending on August 31. Hence, below we will highlight the company's Q2 results of fiscal 2023 for the period ending on February 28.
Ranked from largest to smallest, the Industry groups are Products (customers in consumer goods, industrial and life sciences) at 29.7% of fiscal Q2 2023 revenues, Health & Public Service at 19%, Financial Services at 19%, Communications, Media & Technology at 18.4% and Resources (customers in chemicals, natural resources, energy and utilities) at 13.9% of fiscal Q2 2023 revenues:
Figure 1: Fiscal Q2 2023 Accenture Industry group results
Source: Accenture form 10-Q for Q2 fiscal 2023
Within the Health & Public Service segment, some 66% of fiscal 2022 revenues were in the Public sector, while the rest were in the Health sector. As a result, some 12.5% of total Accenture revenues are awarded by public sector payers.
Operational Overview
Looking at the five industry groups, reported results on a year-over-year basis were all negatively impacted by USD strength.
Products saw its sales increase 4% Y/Y in Q2, well below the 27% increase in fiscal 2022.
Health & Public Service was the best performing industry group, increasing sales 13% Y/Y in Q2, building on a 18% gain in 2022.
Financial Services delivered Q2 revenue growth of 5% Y/Y, again below the 19% increase in 2022.
Communications, Media & Technology was the only contracting industry group in the quarter, down 4% Y/Y, retracing some of the 24% revenue gain in 2022.
Resources was the second-best performer in Q2, with sales up 11%. Measured in local currency, it would have been the best performer at 16% growth. The increase in 2022 was 18% (in USD).
On a consolidated basis, sales increased 5% Y/Y in Q2, well below the 22% gain in fiscal 2022. Adjusted EPS was $2.69/share, up 6% Y/Y. (2022 $10.71/share, + 22% Y/Y). EPS outperformed sales thanks to a 0.1% operating margin gain. Free cash flow was $2.2 billion in Q2 (2022 $8.8 billion).
Accenture Updated 2023 Outlook
Given developments in the first 6 months of the fiscal year, Accenture adjusted its fiscal 2023 guidance:
Revenue growth of 8-10% in local currency (previous 8-11%). Negative FX impact of 4.5% (previous 5%).
Adjusted operating margin 15.3-15.5%, up 0.1-0.3% Y/Y. (no change versus previous guidance)
Adjusted EPS of $11.41-11.63/share, up 7.6% Y/Y.
Free cash flow of $8-8.5 billion, down 6.3% Y/Y (previous guidance $7.7-8.2 billion).
New Bookings
Accenture marked record new bookings in the quarter of 22.1 billion (up 13% Y/Y), bringing its book-to-bill ratio to 1.4. The ratio stood at 1.2 in fiscal 2022 when the pace of increase was 21% on an annual basis.
Capital Structure
Accenture is sitting on a net cash position of $6.2 billion, making it one of the most conservative companies in our government contractors series. The market capitalization stands at $175 billion.
The company continues to deploy capital in a variety of ways. In 2022, Accenture spent $3.4 billion on a total of 38 strategic acquisitions, $1.1 billion on R&D and $1.1 billion on learning/professional development.
For 2023, the company continues to expect to return at least $7.1 billion in cash to shareholders through dividends and share repurchases. The quarterly dividend was increased 15% Y/Y to $1.12/share. Last but not least, the company continues to execute selective M&A transactions to reach its 2% inorganic growth contribution target.
Conclusion
Accenture's growth rate decelerated sharply from the elevated levels achieved in fiscal 2022. Nevertheless, the company is on a very stable financial footing and is working to boost internal efficiencies, with a restructuring program worth $1.5 billion underway.
The depreciation of the US dollar index (down by about 2.8% year-to-date) will diminish the negative impact dollar strength is having on reported numbers. Indeed, for the next quarter the negative effect is seen at only 3.5% (vs 4.5% for the full fiscal 2023). This will allow the strong underlying local currency performance to reach the top line.
In light of the fact that around 12.5% of Accenture revenues were derived from the public sector, monitoring the company’s public procurement activity also remains a smart move that can provide key insights into its financial health.
To learn more about the ways in which TenderAlpha can provide you with insightful public procurement data, get in touch now!
This article was written by members of TenderAlpha's team and does not serve as a recommendation to buy Accenture or any other stock. TenderAlpha is not receiving compensation for it and we have no business relationship with any company whose stock is mentioned in this article.