Profits Accelerate for Accenture

The shares moved higher Wednesday after the IT consulting company posted stronger than expected quarterly results

Accenture's (ACN) profits surged during recent months, as the technology services provider continues battling rivals by pushing ahead with its expansion overseas. After news that the company expects even better times ahead, investors bought Accenture's stock on Mar. 28.

The company had $4.75 billion in revenue during the second fiscal quarter ended Feb. 28, a year-over-year increase of 16% in U.S. dollars and 10% in local currency. "We continue to focus on delivering value to our clients and shareholders while at the same time investing in our people and further sharpening and expanding the capabilities that help differentiate Accenture in the marketplace," CEO William D. Green said in a press release March 27.

Accenture had handed two problem contracts with the U.K. National Health Service to its rival Computer Sciences Corp. (CSC) last year. The multi-billion information technology services deals had made Accenture record a loss provision of $450 million (see, 9/29/06, "Accenture Wins by Losing"). Given such an easy comparison, the company earned $296.7 million in net income during the February quarter, or 6.2% more compared to the same period of last year.

Even so, analysts were pleasantly surprised. Accenture posted 47 cents earnings per share during the February quarter, up from 37 cents one year earlier excluding the impact of the NHS contract and 11 cents including the contract losses. The mean analyst estimate had been for 42 cents, according to Thomson Financial.

Standard & Poor's equity analyst Dylan Cathers boosted his rating on the shares to buy from hold on Mar. 28, as he expects wider operating margins this year, given "robust" bookings for consulting contracts. He also hiked S&P's 12-month target price by $4 to $43.

Accenture has been pushing ahead with efforts to keep growing its business overseas as it battles global technology services giants ranging from IBM (IBM) to Hewlett-Packard (HPQ). In just one recent example, Accenture said this January that it opened its second Czech delivery center in Brno, which will provide application outsourcing for European clients. In Central and Eastern Europe, Accenture already operates delivery centers in Bratislava, Bucharest, Prague, Riga and Warsaw.

The company has also been expanding in other parts of the world, such as India. In September Accenture said it launched a delivery center in Gurgaon, in the National Capital Region of Delhi, India, for application and infrastructure outsourcing and systems integration services.

"Like its competitors, Accenture is busy opening new facilities in India and Eastern Europe. The difference is that Accenture has about a dozen separate facilities across India, has hired 19,000 people in India and China (with plans to almost triple that number in three years), and has near-shore facilities in every major Eastern European country. Unlike many of its rivals, Accenture's management team is not attempting to catch up with delivery and technological standards; it is setting the standards," Morningstar analyst Mike Ford-Taggart said in a research note Feb. 20.

Accenture's new bookings during the February quarter amounted to $5.33 billion, compared to $5.5 billion during the previous quarter. But the company is betting that its earnings per share during the full fiscal year will range between $1.88 and $1.93, which is 8 cents more than previously forecast.

After the news investors bid up Accenture's stock more than 2% to $36.95 per share on the New York Stock Exchange Mar. 28.

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