Accenture plc (ACN - Analyst Report) reported third-quarter fiscal 2015 earnings per share of $1.24, which beat the Zacks Consensus Estimate of $1.21 per share. However, on a year-over-year basis, earnings decreased 1.6% from $1.26 per share. The year-over-year decrease was primarily due to lower non-operating income and higher operating expenses.

Revenues and Bookings

Accenture’s third-quarter net revenue not only increased 0.4% year over year to $7.77 billion but also surpassed the Zacks Consensus Estimate of $7.58 billion. Net revenue also came ahead of management’s guided range of $7.35 to $7.60 billion, primarily aided by a 1% increase in Consulting revenues ($4.11 billion). Outsourcing revenues, on the other hand, were flat on a year-over-year basis at $3.66 billion.

Among the operating segments, Communications, Media & Technology revenues were up 6% on a year-over-year basis to $1.61 billion. Revenues from Health & Public Services increased 5% year over year to $1.38 billion. Revenues from Financial Services, Products and Resources, however, decreased 2%, 2% and 4% on a year-over-year basis to reach $1.64 billion, $1.88 billion and $1.25 billion, respectively.

Geographically, revenues from the North Americas increased 11% on a year-over-year basis, while revenues from Europe and Growth Markets (Asia Pacific, Latin America, Africa, the Middle East, Russia and Turkey) were down 10% and 2%, respectively, from the year-ago quarter.

Accenture reported new bookings of $8.5 billion during the quarter, which were negatively impacted by foreign currency fluctuations. Consulting bookings and Outsourcing bookings for the quarter amounted to $4.5 billion and $4 billion, respectively.

Operating Results

Third-quarter gross margin decreased 30 basis points (bps) year over year to 32.5%, primarily due to higher cost of services.

Operating expenses increased 2.5% from the year-ago quarter to $1.39 million, primarily due to pension settlement expenses. As a percentage of net revenue, operating expenses expanded 40 bps to 17.9% from the year-ago quarter. This in turn negatively impacted operating results.

Accenture’s operating income came in at $1.13 billion or 14.6% of net revenue, which decreased from $1.18 billion or 15.2% of revenues in the year-ago quarter. Accenture reported $839.9 million in net income or $1.24 per share.

Balance Sheet & Cash Flow

Accenture exited the quarter with total cash balance of $4.03 billion compared with $4.06 billion in the preceding quarter. Accenture’s long-term debt balance at the end of the third quarter was $27.2 million.

Operating cash flow was $1.41 billion in the reported quarter while free cash flow was $1.30 billion.

Share Repurchase and Dividend

In line with its policy of returning cash to shareholders, Accenture repurchased 5.6 million shares for $518 million during the third quarter. The company declared a semi-annual cash dividend of $1.02 per share during the quarter.

Guidance

For the fourth quarter of fiscal 2015, Accenture expects net revenue between $7.45 billion and $7.70 billion. The Zacks Consensus Estimate is pegged at $7.58 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 9% to 10% in local currency (previously 8% to 10%). Accenture expects earnings per share in the range of $4.73–$4.78 (previously $4.66-$4.76). 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 $3.8 billion-$4.1 billion, while free cash flow is likely to be within $3.4 billion-$3.7 billion.  

Our Take

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

Accenture’s solid performance across insurance, banking and health care segments reflects strong demand for its services, which boost its 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 to some extent.

Accenture has a Zacks Rank #2 (Buy). Investors may consider Cirrus Logic Inc. (CRUS - Snapshot Report), which sports a Zacks Rank #1 (Strong Buy).