Nasdaq-listed IT services provider Accenture is feeling the heat from slowing US federal procurement, with CEO Julie Sweet confirming that the company’s federal services revenue has taken a hit due to a shift in government priorities.
“The new administration has a clear goal to run the federal government more efficiently. During this process, many new procurement actions have slowed, which is negatively impacting our sales and revenue,” Sweet said during the company’s earnings call on March 20.
After Donald Trump took over as the President of the US, he appointed entrepreneur Elon Musk to head a department --the Department of Government Efficiency (DOGE)— for "modernising federal technology and software to maximise governmental efficiency and productivity".
Initially, Accenture shares climbed more than 2 percent in premarket trading after the company declared its results, however, shares opened nearly 10 percent lower as the company discussed the federal cuts in the conference call with analysts.
Subsequently, Accenture shares closed at their lowest level since June last year.
Company’s Indian rivals’, Infosys and Wipro, American Depository Receipts (ADRs) fell 3.6 percent and 3.2 percent, respectively.
Meanwhile, Sweet highlighted that Accenture’s revenue from federal services accounted 8 percent of the company’s global revenue and 16 percent of its American revenue in FY24.
However, the Trump administration’s focus on improving efficiency across federal agencies has led to a slowdown in new procurement actions, directly impacting Accenture’s sales.
Adding to the challenge, Sweet revealed that the federal procurement agency -General Services Administration (GSA)- has instructed all federal agencies to review contracts with the top ten highest-paid consulting firms working with the US government—a list that includes Accenture.
“We continue to believe our work for federal clients is mission critical, we anticipate ongoing uncertainty as the government's priorities evolve and these assessments unfold,” Sweet said.
Despite the headwinds, she is optimistic about Accenture’s long-term position, as the company has exceled in driving efficiency and modernising federal operations over decades.
Diversification
Angie Park, Accenture’s CFO, echoed Sweet’s sentiment, saying that while the federal revenue slowdown is reflected in the company’s Q3 and full-year revenue guidance, the situation is still evolving.
“Very recent(ly), our revenue guidance range for both Q3 and the full year reflects our best view based on what we see today, which may evolve differently from our estimates and assumptions,” she noted.
Accenture remains optimistic about future, with Sweet highlighting that the company’s experience with commercial clients will help it to bring modern solutions to the federal government.
“We're incredibly well positioned because we've been driving already a lot of efficiency in the federal government with the work we've been doing for decades. And we're now bringing that reinvention that we've been doing now for a few years… we've got the ability to bring that to the federal government as they move forward with their agenda,” she added.
Demand Environment
In recent weeks, Sweet said Accenture has observed heightened uncertainty in the global economic and geopolitical landscape, a marked shift from the relatively stable environment during its Q1FY25 earnings report card in December.
However, CFO Park highlighted that this recent increase in uncertainty has emerged only in the last few weeks, with no material impact on current financials.
“In recent weeks, we are seeing an elevated level of what was already significant uncertainty in the global economic and geopolitical environment, marking a shift from our Q1FY25 earnings report in December. This is a reminder, that elevated uncertainty has been in the last few weeks and so no impact on our books,” Sweet said.
Consequently, the company remains confident in the strong fundamentals of the industry and its solid positioning with clients.
Meanwhile, the company 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.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
