Accenture won’t stop growing in the coronavirus era

Business consulting and outsourcing veteran Accenture (NYSE: ACN) declared its profits early Thursday morning. The report, covering the second quarter of fiscal 2020, beat Wall Street expectations and management painted a rosy picture of Accenture’s long-term outlook. The next few quarters will be tough, but the company is poised for impressive results after the Covid-19 pandemic.

Accenture’s second quarter results in numbers

Metric

Q2 2020

Q2 2019

Change

Analyst consensus

Income

$ 11.1 billion

$ 10.5 billion

6.6%

$ 11.1 billion

GAAP net income attributable to Accenture

$ 1.23 billion

$ 1.12 billion

9.8%

N / A

GAAP earnings per share (diluted)

$ 1.91

$ 1.73

10.4%

$ 1.72

Data source: Accenture. GAAP = generally accepted accounting principles.

Accenture experienced positive year-over-year revenue growth in each of its six operating groups. The gains ranged from a 2% increase in financial services to a 14% increase in the healthcare and utilities division.

The double-digit rise in sales of health and utility services was not directly linked to the novel coronavirus outbreak. The real driver here has been a double-digit increase in utility sales as the federal government ramped up its outsourcing and consulting orders.

This is where it gets interesting. Accenture booked new orders of $ 14.2 billion in the second quarter, a record performance in both consulting and outsourcing. New bookings stopped at $ 10.3 billion in the first quarter and $ 11.8 billion in the quarter of last year, so this is an impressive peak. At the same time, the company reduced its forecast for full-year revenue growth from 7% to 4.5%, reflecting the expected business impact of the coronavirus. Third-quarter sales are expected to reach nearly $ 11.0 billion, in line with the performance of the third quarter of the previous year.

How business is done when the office is closed. Image source: Getty Images.

Why the next quarter will not benefit from these massive orders

How can the short-term revenue trend look weak even though Accenture has seen a record volume of new orders? In short, the new business is mostly long-term contracts, and some of them won’t even go into effect until later this year. Business is relatively slow everywhere as the world grapples with virus containment efforts.

“Our business is going to do differently over the next two quarters for a multitude of reasons,” CEO Julie Sweet said on the second quarter earnings conference call.

There is a benefit to all of this for Accenture. The company is playing an active role in helping other businesses cope with the effects of the virus outbreak on day-to-day operations. For example, Sweet pointed to a recent deal where a client wanted to implement online collaboration and communication tools for more than 60,000 employees in five days. Accenture has partnered with Microsoft (NASDAQ: MSFT) to bring the entire workforce to the Microsoft teams collaboration platform, by completing this order on time.

This is just one unusually large example of a general trend as remote working via digital links becomes the new normal in this coronavirus era.

What doesn’t kill you makes a stronger investment

The Accenture report serves as a strong reminder that life will continue beyond fear of the coronavirus. This global IT services giant expects a slight slowdown followed by an increase in revenue in FY2021 and beyond, as the glut of new orders begins to turn into cash-generating revenue.

“The fundamentals of our business are solid and we plan to release [from the health crisis] even louder, ”said Sweet.

It might sound like an empty leadership turn on a dire situation, but I actually agree with Sweet’s conclusion. His words are backed up by this smooth, gentle influx of new orders, and even the direct slowdown of the coronavirus over the next two quarters seems manageable. Accenture shares have fallen 29% over the past month, keeping pace with the S&P 500. This report suggests that the price declines for this particular stock have gone too far. The coronavirus has made a deep discount value investing outside of Accenture.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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