ACCENTURE PLC CL A (ACN) Earnings Summary for Q4 FY2024

Key Metrics

• Bookings:
  • Total: $20.1 billion (21% yoy, 24% local currency)
  • Consulting: $8.6 billion
  • Managed Services: $11.6 billion
• Revenue:
  • Total Revenue: $16.4 billion (3% yoy, 5% local currency)
  • Consulting Revenue: $8.3 billion (1% yoy, 3% local currency)
  • Managed Services Revenue: $8.1 billion (5% yoy, 7% local currency)
• Gross Margin: 32.5% (compared to 32.4% last year)
• Operating Margin: 15% (10 basis points increase yoy)
• Operating Cash Flow: $3.4 billion
• Free Cash Flow: $3.2 billion
• Share Repurchases: 2.1 million shares for $628 million at an average price of $303.07 per share.

Forward guidance

1. Q1 FY25 Revenue Guidance: Expected in the range of $16.85 billion to $17.45 billion, reflecting 2% to 6% growth in local currency.
2. Full FY25 Revenue Growth: Projected 3% to 6% growth in local currency over FY24, including an inorganic contribution of over 3%.
3. Operating Margin Guidance: Expected to be 15.6% to 15.8%, representing a 10 to 30 basis point expansion over adjusted FY24 results.
4. Effective Tax Rate: Anticipated to be in the range of 22.5% to 24.5%, compared to 23.6% in FY24.
5. Diluted EPS Guidance: Expected to be between $12.55 and $12.91, indicating 5% to 8% growth over adjusted FY24 EPS.
6. Free Cash Flow Guidance: Projected to be in the range of $8.8 billion to $9.5 billion, reflecting a free cash flow to net income ratio of 1.1 to 1.2.
7. Acquisition Investment: Planned investment of about $3 billion in acquisitions for FY25.

Key takeaways

• Positives:
  • Julie Sweet emphasized Accenture's resilience, stating, "Our performance this year clearly demonstrates the resilience and agility of our business model," indicating strong adaptability in a challenging market.
  • The company reported $81 billion in bookings, a 14% increase, with 125 clients having quarterly bookings over $100 million, showcasing robust demand for large-scale transformations.
  • KC McClure noted, "We continue to take market share," reflecting competitive strength and effective positioning against peers.
  • Accenture's investment in GenAI is significant, with $3 billion in new bookings and nearly $900 million in revenue, highlighting a strategic focus on transformative technology.
  • The company generated $8.6 billion in free cash flow, allowing for a substantial return of $7.8 billion to shareholders, demonstrating strong financial health.
• Negatives:
  • Julie Sweet acknowledged a "challenging market environment," suggesting potential headwinds in client spending and economic conditions.
  • The outlook for FY '25 includes a cautious revenue growth forecast of 3% to 6%, with Angie Park indicating that the lower end assumes "further deterioration in the discretionary spend environment."
  • Sweet noted, "We're not hearing from CEOs... some big like, hey, now we're ready to go spend more," indicating a lack of urgency in client budgets that could hinder growth.
  • The company plans to raise modest long-term debt, which may signal a need for liquidity amid uncertain market conditions, although it maintains a low net leverage.
  • The transition to GenAI is still in early stages, with Sweet stating, "we haven't seen a change in overall spending," indicating that while there is interest, actual budget allocation remains cautious.

Peer Summary

• Consulting Sector Insights:
  • IBM's consulting revenue was flat, with Arvind Krishna noting a "pause in discretionary spending due to macroeconomic uncertainties," indicating potential challenges in client budgets that may affect growth.
  • Cognizant highlighted a "tight discretionary spending environment" in the CMT segment, which could hinder overall growth, echoing concerns about client spending behavior.
• Technology Services Trends:
  • IBM reported strong technology spending, particularly in software and AI, with Krishna stating, "Technology spending remains strong," contrasting with Accenture's cautious outlook on client budgets.
  • Cognizant's Ravi Kumar mentioned a "gradual rebound of spend cycles" in financial services, suggesting a potential recovery in discretionary spending that may not align with Accenture's more conservative growth projections.
• Macroeconomic Sentiment:
  • Leidos noted "real customer budget challenges" and potential disruptions due to the upcoming election year, which could impact funding and growth, reflecting broader economic uncertainties.
  • NETAPP acknowledged "continued budget challenges" in the U.S. public sector, indicating vulnerabilities in specific markets that may affect overall sector performance.