Accenture beats revenue estimates in Q2FY25; modest guidance uptick for full-year forecast

Accenture

Accenture raised the lower end of its annual revenue forecast on March 20, betting on growing demand for its services to help clients integrate AI-powered tools into their operations.

Strong demand for large-scale projects in cloud migration, artificial intelligence (AI)-led digital transformation, and data security has helped companies such as Accenture.

Accenture shares climbed more than 2 percent in premarket trading on Thursday.

“Our second quarter results demonstrate that we continue to deliver on our strategy to lead reinvention for our clients and return to strong growth in FY25, with broad-based growth across markets, industries, and the types of work our clients seek from us," said Accenture Chair and CEO Julie Sweet.

Accenture has secured several large projects and partnered with banks, telecommunication firms, and sports firms among others.

The company now expects annual revenue to grow between 5 percent and 7 percent, compared with its prior forecast of 4 percent to 7 percent. Analysts had expected revenue growth of 5.7 percent, according to data compiled by LSEG.

Given that a substantial portion of Accenture's workforce is based in India, its results often serve as an indicator of the broader trends and potential outcomes within the over-five-million-strong Indian IT sector.

The world’s largest IT services company reported an increase in headcount by 2,000 employees to 801,000 in Q2FY25. In the previous quarter, the company had added about 24,000 employees.

Accenture follows a September-August financial year.

The Dublin-headquartered firm's attrition rate increased by 1 percentage point to 13 percent for the quarter.

Meanwhile, Total bookings stood at $20.9 billion, down 3.2 percent year-over-year. Operating margin for the quarter decreased by 10 basis points to 15.1 percent.

"We view Accenture's results as mixed for our IT Services coverage, as the pace and mix of revenue growth in 2Q suggest gradual improvement (but at a slowing rate) in the broader discretionary environment," Goldman Sachs Research reacted to the earnings in a research note.

Accenture's Key Numbers

Second quarter new bookings for the second quarter of fiscal 2025 decreased by 3 percent to $20.9 billion sequentially. While consulting new bookings were $10.47 billion, managed services new bookings stood at $10.44 billion.

GAAP diluted earnings per share were $3.59, a 16 percent increase compared to $3.10 for the first quarter of fiscal 2024, and an increase of 10 percent over adjusted EPS of $3.27 for the first quarter last year.

The operating margin for the quarter stood at 16.7 percent, increasing 90 basis points (bps) year-on-year and 167 basis points sequentially. Bps are a unit of measure equal to one-hundredth of a percentage point.

Gen AI numbers

The company highlighted strong client confidence, with 32 clients booking over $100 million each and $1.4 billion in new Generative AI (Gen AI)-related bookings this quarter.

Accenture and TCS are the only two big IT companies that have so far declared revenue from this nascent technology.

In Q1, new bookings stood at $18.7 billion, including 30 quarterly client bookings of more than $100 million, and with Generative AI (Gen AI) new bookings at $1.2 billion.

In Q4, the company recorded Gen AI new bookings of $1 billion, and $3 billion for the FY24.

Businesses are ramping up investments to scale AI projects and digitize core operations, aiming to enhance efficiency and reduce costs—trends that are benefiting companies like Accenture.

Accenture's US-based IT services rival Cognizant Technology Solutions, on February 5, also beat Street estimates on the revenue front. The Nasdaq-listed IT company's annual guidance for 2025 is in the range of 3.5 percent to 6 percent in constant currency (CC) terms.

This is significantly higher than what the company had guided in Q3 in the range of 1.4 percent to 1.9 percent for the full year and last year’s guidance in the range of -2 percent to 2 percent in CC terms.

Delving deeper

Geography-wise, quarterly revenue increased 11 percent year-on-year to $8.6 billion in North America, while revenue from the Europe, Middle East, and Africa region increased by 8 percent to $5.8 billion. Revenue from other markets also increased by 1 percent to $2.3 billion.

On the verticals front, the largest one - products business – increased 9 percent at $5.1 billion year-on-year in Q2. Next in line, the health & public service vertical increased by 10 percent to $3.6 billion year-on-year. The financial services vertical increased by 11 percent to $3.1 billion.

Meanwhile, Accenture expects revenues for the second quarter of fiscal 2025 to be in the range of 3 percent to 7 percent growth, assuming a negative 0.5 percent foreign exchange impact compared with the third quarter of fiscal 2024.