Accenture's Free Cash Flow Jumped 54% in Q2

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Professional-services giant Accenture (NYSE: ACN) reported earnings on Thursday, covering the second quarter of fiscal year 2019. The company delivered 5% sales growth and 26% higher earnings per share despite significant currency-related headwinds.

Accenture's second-quarter results: The raw numbers

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Metric

Q2 2019

Q2 2018

Year-Over-Year Change

Revenue

$10.45 billion

$9.91 billion

5.4%

Net income

$1.14 billion

$920 million

24%

GAAP earnings per share (diluted)

$1.73

$1.37

26%

What happened with Accenture this quarter?

  • Three months ago, Accenture set its second-quarter revenue guidance at roughly $10.3 billion. The company exceeded that target by 1.5%.
  • When adjusted for the rising value of the U.S. dollar compared to other major currencies, Accenture's currency-adjusted sales rose 9% year over year.
  • European orders rose by a modest 1%, while North America delivered 8% revenue growth and growth markets achieved a 9% boost. Accounting for currency exchange effects, European sales rose 7% in local currencies, while growth-market sales surged 16%.
  • Accenture's services for the natural resources industry led the charge, with an unadjusted 17% revenue bump, or a 22% increase in currency-adjusted terms. Financial services lagged far behind, with a 2% year-over-year revenue drop.
  • Free cash flow increased by 54%, landing at $1.22 billion. The increase rested mainly on Accenture's net income, though $140 million of property additions also played a part.
  • $1 billion of that incoming cash haul was used to repurchase Accenture's own shares.

What management had to say

In the earnings call, interim CEO David Rowland reiterated Accenture's commitment to high-growth operations in a category labeled "the New." These businesses, built around digital services and data security, accounted for 65% of the second quarter's revenues. That's up from 60% in the first quarter and 55% in the year-ago period.

"The foundation of our growth strategy is to drive strong momentum in the New," Rowland said. "That has certainly been the case so far this year with continued double-digit growth across digital, cloud, and security, even as these businesses have reached significant scale and now represent the majority of what we do."

Looking ahead

Accenture's management expects third-quarter revenues to stop near $10.85 billion, reflecting roughly 7% year-over-year growth in local currencies.

For the full fiscal 2019, currency-adjusted revenue growth is now seen at approximately 7.5%, compared with a 7% target in the previous quarter's guidance statement. The full-year earnings target was also raised by 1.7% and now sits at roughly $7.25 per diluted share. Free cash flow should add up to $5.4 billion, up from $5.3 billion three months ago.

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Anders Bylund has no position in any of the stocks mentioned. The Motley Fool recommends Accenture. The Motley Fool has a disclosure policy.