March 27, 2014 / 11:19 AM / 5 years ago

Accenture warns consulting business to remain weak

(Reuters) - Accenture Plc warned that weakness in its consulting business that hurt second-quarter results would carry on though the year, sending its shares down as much as 8 percent.

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

The consulting business, which brings in more than half of the company’s revenue, has fallen in six of the last seven quarters as customers cut discretionary spending and stiff competition puts pressure on contract prices.

Accenture raised its full-year profit forecast and the lower end of its revenue forecast. But it said revenue in the consulting business would be flat or grow in the low-single digits in the year ending August 31.

The company reported record high consulting bookings of $4.6 billion but Chief Financial Officer David Rowland said on a conference call with analysts that pricing pressure was eating into revenue growth.

Consulting revenue fell 1 percent in U.S. dollar terms and payroll costs rose, leading to a lower-than-expected profit for the quarter ended February 28.

However, Evercore analyst David Togut said Accenture’s track record of managing costs and the strong bookings numbers bode well for growth in 2015.

“Multiple times since its 2001 IPO Accenture has successfully managed cost pressures. Superior bookings growth, high book-to-bill ratios and a strong track record of managing expenses reinforces our conviction in ACN’s earnings growth prospects,” Togut said.

Hewlett-Packard Co said in February that revenue from its technology consulting business dropped 4 percent in the quarter ended January but that the business was more profitable.

Accenture, recently chosen as the lead contractor for the Obamacare enrollment website, said it expected strong growth in its health and public service business in the second half of the year.

The company raised its full-year profit forecast to $4.50 to $4.62 per share from $4.44 to $4.56 per share.

It forecast full-year revenue growth of 3-6 percent in local currency, compared with its previous forecast of 2-6 percent.

The company’s net income fell 39 percent to $722.3 million in the second quarter. It earned $1.03 per share, slightly lower than analysts average expectation of $1.04, according to Thomson Reuters I/B/E/S.

Net revenue, or revenue before reimbursements, rose 1 percent to $7.13 billion. That was in line with the company’s forecast, but fell short of analysts’ expectation of $7.21 billion.

Shares of the company were trading down 6.5 percent at $77.59 in afternoon trading on the New York Stock Exchange. They hit a low of $76.25 earlier in the session.

The stock has risen almost 10 percent since the company reported first-quarter results, outperforming a rise of about 4 percent in the S&P 500 index.

Reporting by Sruthi Ramakrishnan in Bangalore; Editing by Savio D'Souza

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