Accenture's stock sees biggest selloff in a decade after earnings outlook cut

By Tomi Kilgore

IT consultant expects $600 million in the second quarter for new bookings for generative AI and sees its AI workforce doubling in two years

Accenture PLC investors were having their worst day in 10 years on Thursday, after the management consultant cut its full-year earnings outlook as clients pull further bank on spending and as corporate decision-making continues to get delayed.

Meanwhile, the company (ACN) touted its growth in the market for generative artificial intelligence, saying it plans to double its AI workforce over the next two years.

New bookings for generative AI totaled more than $600 million during the fiscal second quarter. That brings total bookings to $1.1 billion for the first half of the fiscal year, "to extend our early lead" in the genAI market, Chief Executive Julie Sweet said.

"We now have over 53,000 skilled data and AI practitioners, against our goal of doubling our data and AI workforce from 40,000 to 80,000 by the end of fiscal year 2026," Sweet said, according to an AlphaSense transcript of the post-earnings call with analysts.

But the stock dropped 9% toward a two-month low in afternoon trading, to pace the S&P 500 index's SPX decliners. It was headed for the biggest one-day selloff since it tumbled 10.3% on June 28, 2013.

The selloff comes after the company reported fiscal second-quarter profit that beat expectations but revenue that fell shy, and cut its fiscal 2024 guidance.

Entering calendar 2024, Sweet said the company experienced "another turn of the dial on constraining spending by our clients." She said that was evident as the composition of new bookings came in differently than expected.

"We see clients continuing to prioritize investing in large-scale transformations, which convert to revenue more slowly while further limiting discretionary spending, particularly in smaller projects," Sweet said. "We also saw continued delays in decision-making and a slower pace of spending."

Net income for the quarter to Feb. 29 rose to $1.68 billion, or $2.63 a share, from $1.53 billion, or $2.39 a share, in the same period a year ago. Excluding nonrecurring items, adjusted earnings per share of $2.77 was above the FactSet consensus of $2.66.

Revenue slipped 0.1%, to $15.8 billion from $15.81 billion, while the FactSet consensus called for an increase to $15.85 billion.

New bookings fell 2% to $21.58 billion, as consulting bookings totaled $10.52 billion and managed-services bookings were 11.06 billion.

Looking ahead, the company expects third-quarter revenue of $16.25 billion to $16.85 billion, below the current FactSet consensus of $17.02 billion.

For fiscal 2024, Accenture lowered its guidance range for revenue growth to 1%-3% from 2%-5%, and for adjusted EPS to $11.97-$12.20 from $11.97-$12.32. The FactSet EPS consensus is for $12.24, while the revenue consensus of $66.17 billion implies 3.2% growth.

The stocks of other IT consultants also fell Thursday, to buck the rally in the broader stock market.

Shares of India-based Infosys Ltd. (INFY) dropped 3.4% toward a two-month low, Cognizant Technology Solutions Corp.'s stock (CTSH) was down 2.5% and India-based Wipro Ltd. shares (WIT) shed 1.9%.

Meanwhile, the S&P 500 was up 0.4%.

More on AI

Accenture CEO Sweet said that while there is now a "near universal recognition" of the importance of AI, the ability to use AI at scale varies widely, depending on the strength of clients' digital cores.

"While most clients are coming to grips with the investments needed to truly implement AI across the enterprise, nearly all are finding it difficult to scale, because the AI technology is a small part of what is needed," she said.

She said that for clients to reinvent themselves using technology, data and AI and to fully unlock the value of AI, they must have the right "digital core," change the way they work, train their employees and build new capabilities around AI, all while having a deep understanding of how AI works.

-Tomi Kilgore

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03-21-24 1419ET

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