Accenture plc (ACN - Analyst Report) reported first-quarter fiscal 2015 earnings per share of $1.29, which surpassed the Zacks Consensus Estimate of $1.19. On a year-over-year basis, earnings increased 12.2% from $1.15 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 first-quarter net revenue not only increased 7.3% year over year to $7.89 billion but also surpassed the Zacks Consensus Estimate of $7.69 billion. Net revenue also beat management’s guided range of $7.55 to $7.80 billion, primarily aided by an 11% increase in Outsourcing revenues ($3.80 billion) and a 4% increase in Consulting revenues ($4.09 billion).  

Among the operating segments, Communications, Media & Technology revenues were up 12% on a year-over-year basis to $1.58 billion. Revenues from Health & Public Services increased 11% to $1.37 billion on a year-over-year basis. Revenues from Financial Services and Products increased 7% each on a year-over-year basis to reach $1.72 billion and $1.93 billion, respectively. Revenues from Resources however decreased 1% on a year over year basis and came in at $1.30 billion.

Geographically, revenues from the North Americas and Europe increased 11% and 5%, respectively, while revenues from the Growth Markets (Asia Pacific, Latin America, Africa, the Middle East, Russia and Turkey) were up 3% from the year-ago quarter.

Accenture reported new bookings of $7.7 billion during the quarter, which was negatively impacted by foreign currency fluctuations. Consulting bookings and Outsourcing bookings for the quarter amounted to $3.9 billion and $3.8 billion, respectively.

Operating Results

First-quarter gross margin decreased 110 basis points (bps) from the year-ago quarter to 32.2%, primarily due to higher cost of services.

Operating expenses decreased a marginal 0.5% from the year-ago quarter to $1.35 million, primarily due to lower selling, general & administrative expenses. As a percentage of net revenue, operating expenses contracted 140 bps to 17.1% from the year-ago quarter. This in turn positively impacted operating results.

Accenture’s operating income came in at $1.19 billion or 15% of net revenue, which increased from $1.09 billion or 14.8% of revenues reported in the year-ago quarter. Accenture reported $882.2 million in net income or $1.29 per share.

Balance Sheet & Cash Flow

Accenture exited the quarter with total cash balance of $4.47 billion versus $4.92 billion in the preceding quarter. Accenture’s long-term debt balance at the end of the first quarter was $26.8 million.

Operating cash flow was $872.9 million in the reported quarter while free cash flow was $821 million.
 
Share Repurchase and Dividend

In keeping with its policy of returning cash to shareholders, Accenture repurchased 8.4 million shares for $670 million during the first quarter. During the reported quarter, Accenture paid a total cash dividend of $679 million. The company increased semi-annual cash dividend by 10% during the quarter.

Guidance

For the second quarter of fiscal 2015, Accenture expects net revenue between $7.25 billion and $7.50 billion. The Zacks Consensus Estimate is pegged at $7.45 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 5% to 8% in local currency (previously 4% to 7%). Accenture expects earnings per share in the range of $4.66–$4.80 (previously $4.74-$4.88). The Zacks Consensus Estimate is pegged at $4.80 per share. The company expects new bookings in the range of $34 billion???$36 billion.

For fiscal 2015, the company’s operating margin is projected in the range of 14.4% to 14.6%. Operating cash flow is expected in the range of $3.95 billion???$4.25 billion, while free cash flow is likely to be within $3.5 billion???$3.8 billion.  

Recommendation

Accenture delivered better-than-expected first-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. Also, the company provided an encouraging second quarter and fiscal 2015 revenue guidance. Another encouraging factor was the revenue increase in its Consulting business.

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

Currently, Accenture has a Zacks Rank #4 (Sell). Investors may wish to consider Micron Technology (MU - Analyst Report), with a Zacks Rank #1 (Strong Buy).