Amid a slew of earnings reports this week, IT services giant Accenture signals more pain for the industry with a disappointing forecast. During the earnings call, CEO Julie Sweet said clients were “holding back on small deals” in the face of an uncertain economic outlook. The gloomy outlook sent shares down more than 5%.
The company’s revenue forecast fell short of estimates as consulting bookings and managed services slipped. The company also warned that higher attrition and a weakening currency are slowing growth momentum. “The slowdown in hiring, book-to-bill, and moderation in revenue growth suggests that demand is normalizing,” said Jefferies analyst KC McClure.
Aside from the warnings, the quarterly results aligned with analysts’ expectations. However, the company’s outlook prompted investors to sell. The stock was down almost 7% in after-hours trading.
The global consulting and IT services company reported third-quarter revenue of $17.2 billion, up 3% in local currencies but below the analysts’ average estimate. Revenue in its consulting business slid 8%, reflecting the softening customer demand in the technology sector. New bookings declined across all industries except for the financial services sector, which saw a 10% increase.
Revenue in the company’s digital transformation business rose 4%, benefiting from the rapid adoption of cloud and artificial intelligence technologies. The company is also helping companies prepare for a future in which automation will make many jobs obsolete, and businesses will have to adapt. The digital transformation market, which includes data analytics and application development, is expected to grow by at least 16% this year to a value of $700 billion globally.
However, higher attrition and a strengthening US dollar pressured the company’s margins. The profit margin came in at 15.2%, below the company’s guidance of 17.5%. The firm incurred $1.2 billion in expenses for severance and $300 million for relocation costs.
Despite the cooling demand, Accenture expects a modest recovery in the fourth quarter. The company said it would continue to focus on its more significant digital transformation projects and on delivering business outcomes such as improved security and customer experiences.
The company said it will cut about 19,000 jobs, or 2.5% of its workforce, over the next 18 months. The cuts are being made in light of “several macroeconomic concerns, uncertainty, and volatility” to position the company for better future growth. Most affected employees are in India, home to 40% of the company’s 7.38 lakh workers worldwide.
Management and technology consulting giant Accenture is scheduled to report quarterly results before markets open on Thursday. The company ranks eighth out of 58 stocks in IBD’s Computer-Tech Services industry group. The stock has an IBD Composite Rating of 88. Click here to see how it fits into IBD’s Earnings Stream. Follow IBD’s Patrick Seitz on Twitter. You can find more IBD content in the IBD Stock Checkup app. The app is free to download for iPhone and iPad.
