Accenture plc (ACN - Analyst Report) reported second-quarter fiscal 2015 earnings per share of $1.08, which beat the Zacks Consensus Estimate by a penny. On a year-over-year basis, earnings increased 4.8% from $1.03 per share. The year-over-year increase was attributed to higher revenues, higher non-operating income and lower share count.

Revenues and Bookings

Accenture’s second-quarter net revenue not only increased 5.1% year over year to $7.49 billion but also surpassed the Zacks Consensus Estimate of $7.35 billion. Net revenue also came in line with the higher end of management’s guided range of $7.25 to $7.50 billion, primarily aided by a 6% increase in Outsourcing revenues ($3.65 billion) and a 4% increase in Consulting revenues ($3.84 billion).  

Among the operating segments, Communications, Media & Technology revenues were up 8% on a year over year basis to $1.52 billion. Revenues from Health & Public Services increased 12% to $1.32 billion year over year. Revenues from Financial Services and Products increased 2% and 6% on a year over year basis to reach $1.59 billion and $1.85 billion, respectively. Revenues from Resources however decreased 1% on a year over year basis and came in at $1.21 billion.

Geographically, revenues from the North Americas and Growth Markets (Asia Pacific, Latin America, Africa, the Middle East, Russia and Turkey) increased 13% and 3%, respectively, while revenues from Europe were down 2% from the year-ago quarter.

Accenture reported new bookings of $9.4 billion during the quarter, which were negatively impacted by foreign currency fluctuations. Consulting bookings and Outsourcing bookings for the quarter amounted to $4.2 billion and $5.1 billion, respectively.

Operating Results

Second-quarter gross margin decreased 140 basis points (bps) year over year to 29.9%, primarily due to higher cost of services.

Operating expenses decreased 4.6% from the year-ago quarter to $1.22 million, primarily due to lower selling, general & administrative expenses. As a percentage of net revenue, operating expenses contracted 160 bps to 16.3% from the year-ago quarter. This in turn positively impacted operating results.

Accenture’s operating income came in at $1.02 billion or 13.6% of net revenue, which increased from $951.3 million or 13.3% of revenues in the year-ago quarter. Accenture reported $731.8 million in net income or $1.08 per share.
 

Balance Sheet & Cash Flow

Accenture exited the quarter with total cash balance of $4.06 billion compared with $4.47 billion in the preceding quarter. Accenture’s long-term debt balance at the end of the second quarter was $27 million.

Operating cash flow was $301 million in the reported quarter while free cash flow was $220 million.
 
Share Repurchase and Dividend

In keeping with its policy of returning cash to shareholders, Accenture repurchased 6.8 million shares for $601 million during the second quarter. The company declared a semi-annual cash dividend of $1.02 per share during the quarter.

Guidance

For the third quarter of fiscal 2015, Accenture expects net revenue between $7.35 billion and $7.60 billion. The Zacks Consensus Estimate is pegged at $7.62 billion. The company did not provide any earnings per share guidance.

Accenture raised its revenue guidance for fiscal 2015. The company expects net revenue to grow in the range of 8% to 10% in local currency (previously 5% to 8%). Accenture expects earnings per share in the range of $4.66-$4.76 (previously $4.66-$4.80). The Zacks Consensus Estimate is pegged at $4.75 per share. The company expects new bookings in the range of $33 billion - $35 billion.

For fiscal 2015, the company’s operating margin is projected in the range of 14.2% to 14.4%. Operating cash flow is expected in the range of $3.85 billion - $4.15 billion, while free cash flow is likely to be within $3.4 billion - $3.7 billion.  

Recommendation

Accenture delivered better-than-expected second-quarter 2015 results. Moreover, both earnings and revenues increased on a year-over-year basis, reflecting an increased focus on the Outsourcing business, new bookings and continuous return of shareholders’ value. However, the company provided tepid third quarter 2015 revenue guidance.

Accenture’s solid performance across insurance, banking and health care segments reflects strong demand for its services, thereby boosting long-term growth prospects. However, increasing competition from Cognizant Technology Solutions (CTSH - Analyst Report) and IBM (IBM - Analyst Report), a strained spending environment and Accenture’s broad European exposure may temper its growth prospects to some extent.

Accenture has a Zacks Rank #3 (Hold). Investors may consider Juniper Networks, Inc. (JNPR - Analyst Report), which sports a Zacks Rank #1 (Strong Buy).