Accenture reported its Q1 2018 results on December 21, posting 12% year-over-year growth in revenues to $9.5 billion. The operating margins for the company also stabilized at 15.6% despite investments in high growth verticals such as security, cloud and digital, which are witnessing double-digit growth in revenues. These new verticals now account for more than 55% of total revenues. Both the Consulting and Outsourcing businesses reported double-digit growth in earnings, and the company reported new bookings worth $10 billion for the quarter. While Consulting net revenues grew by 13% y-o-y to $5.18 billion, Outsourcing net revenues grew by 11% to $4.34 billion. Due to the solid top line growth, Accenture’s stock rallied by over 5%. Below we discuss the results in more detail.
Consulting Revenues See Further Growth
Accenture has been seeing double digit growth in its Consulting revenues in the past few quarters. During the most recent quarter, Consulting revenues grew by 13% y-o-y to $5.18 billion. Furthermore, the company’s momentum for new orders grew as it booked orders worth $5.1 billion (or 59% of total new bookings) during the quarter. The book-to-bill ratio, a metric that indicates the growth in new contracts, grew to 1.14x as Accenture’s new signings grew to a record high. The company is progressively booking record new signings. This should continue to drive double-digit growth in the Consulting business in the coming quarters.
Outsourcing Revenues Post Robust Growth Amid Improvement In New Signings
During the quarter, Accenture’s Outsourcing business continued to outpace the broader outsourcing industry, as net revenues grew by 11% to $4.34 billion. Accenture reported strong demand for its outsourcing services as new bookings grew by 17% y-o-y to $4 billion. The Outsourcing book-to-bill ratio declined to 0.92x in the quarter, indicating revenues outpaced new signings during the quarter. Considering the orders booked in previous quarters, we believe that the company will continue to post double-digit growth in revenues for the ensuing quarters.
Guidance For Fiscal Q2 And 2018
Accenture expects its net revenue to be in the range of $9.15 billion to $9.4 billion in fiscal Q2, a growth of 6-9% in local currency. For fiscal 2018, the company has revised the lower range of guidance and now expects its revenues to grow by 6-8% in local currency. The company has also revised its EPS estimated. It now expects diluted EPS to be in the range of $6.48 to 6.66 compared with $6.36 to $6.60 previously. Accenture expects its operating margin for the full fiscal year to be in the 15% range, an expansion of 10 to 30 basis points from the adjusted operating margin for fiscal 2017.
We are in the process of updating our model. At present, we have a $125 price estimate for Accenture, which is around 20% below its current market price.