March 22, 2018 / 11:10 AM / 8 months ago

Accenture trims profit margin forecast as spending grows; stock dives

(Reuters) - Consulting services firm Accenture Plc (ACN.N) trimmed its yearly forecast for profit margins, driving its stock down 6 percent on Thursday and overshadowing quarterly results that comfortably topped Wall Street targets.

FILE PHOTO - Visitors look at devices at Accenture stand at the Mobile World Congress in Barcelona, February 26, 2013. REUTERS/Albert Gea/File Photo

Accenture now expects fiscal 2018 operating margin — profit as a proportion of revenue — of 14.8 percent, a level consistent with results in fiscal 2017, but lower than the 10- to 30-basis-point expansion originally expected by the company.

Dublin-based Accenture flagged lower profits from services for healthcare and public service clients as well as higher spending as reasons for the revised forecast.

The company also said it expects operating margin to expand in the second half of the year.

“Operating margin was light of (Wall Street) expectations ... operating profit in the Health & Public Service sector has declined significantly,” Atlantic Equities analyst Chris Hickey said.

Accenture has spent more than $3 billion over the last three years — nearly half of it in fiscal 2017 — on some 70 acquisitions, to boost its digital and cloud services in order to compete better with Cognizant (CTSH.O) and IBM (IBM.N).

Those services helped Accenture grow net revenue by 15.2 percent to $9.59 billion in the second quarter ended Feb. 28, the biggest increase in at least five years.

Net revenue also soared past analysts’ average expectation of $9.31 billion, according to Thomson Reuters I/B/E/S.

The digital and cloud services, which Accenture calls “the New,” also made up more than 55 percent of revenue, reaching a record level.

“‘The New’ is really impacting across the board,” Chief Executive Pierre Nanterme said on a call with analysts.

Accenture began investing in businesses such as digital marketing and cybersecurity about five years ago, compared with its peers that began a similar effort only one or two years back, said Wedbush Securities analyst Moshe Khatri.

The company forecast current-quarter revenue between $9.90 billion and $10.15 billion, well ahead of analysts’ average estimate of $9.68 billion.

Net income attributable to the company rose to $863.7 million in the second quarter, from $838.8 million a year earlier. Accenture reported earnings of $1.37 per share in the latest quarter.

Results included a $137 million charge related to the new U.S. tax code.

Excluding one-time items, the company earned $1.58 per share, topping market estimates of $1.49 per share.

Reporting by Arjun Panchadar in Bengaluru; Editing by Sai Sachin Ravikumar

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