Accenture's stock is experiencing downward pressure as the company predicts its Q4 revenue.
June 22, 2023: Today, Accenture’s stock faced pressure as the company provided a disappointing forecast for its fourth-quarter revenue. The I.T. consulting firm’s projection fell short of Wall Street estimates, causing its shares to trade lower in the pre-market session. The company’s outlook for the upcoming quarter of fiscal 2023 failed to meet analysts’ expectations due to concerns over economic uncertainty. This uncertainty is expected to result in tight I.T. budgets and discourage businesses from entering into new contracts.
In its financial report for the third quarter of fiscal 2023, which ended on May 31, 2023, Accenture disclosed that its revenues were $16.56 billion, showing a 3% increase in U.S. dollars and 5% in local currency compared to the third quarter of fiscal 2022. However, there were some areas of concern. Accenture’s GAAP operating income for the third quarter stood at $2.36 billion, a decline from $2.60 billion in the same quarter last year, and the operating margin decreased from 16.1% to 14.2% year-over-year. On the other hand, the adjusted operating income was $2.71 billion, with an adjusted operating margin of 16.3%, representing a 20 basis points (bps) expansion from the third quarter of fiscal 2022.
The company reported new bookings of $17.2 billion for the quarter, with consulting bookings amounting to $8.9 billion and managed services bookings at $8.3 billion. Notable highlights from the report include an operating cash flow of $3.29 billion, property and equipment additions of $142 million, and a total cash balance of $8.5 billion as of May 31, 2023, compared to $7.9 billion in August 2022. Accenture also declared a quarterly cash dividend of $1.12 per share, representing a 15% increase over the previous year.
Accenture’s share repurchase activity during the third quarter of fiscal 2023 involved the repurchase or redemption of 2.8 million shares, totaling $789 million. This included nearly 2.6 million shares repurchased in the open market. In the first three quarters of fiscal 2023, the company repurchased 12.1 million shares for $3.33 billion, with approximately 9.6 million in the open market.
The forecast of lower fourth-quarter revenue by Accenture has raised concerns about the I.T. industry, as clients are holding back on small deals due to an uncertain economic outlook. The company attributed the weakness in revenue to reduced spending in the tech, media, and communications sectors, which have been scaling back their investments to address slowing growth. Additionally, Accenture’s largest market, North America, experienced poor performance from March to May, with revenue growth slowing to a nearly three-year low of approximately 2%. Other I.T. companies, such as Cognizant Technology Solutions and Tata Consultancy Services, have also faced challenges in signing contracts and noted a lack of U.S. recovery as expected.
Various factors, including the possibility of further interest rate hikes by the U.S. Federal Reserve, influence the company’s prospects. However, Accenture remains positive about continued growth in bigger transformational deals in the digital space and emphasizes the completion of cloud migrations as a key focus area.
