Accenture flags pressure on consulting business as clients turn cautious

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By Yuvraj Malik

-Accenture Plc on Friday outlined weakness in its consulting business and forecast lower-than-expected quarterly sales overall, signaling pressure as companies postpone business improvement projects amid economic uncertainty.

After a boom during the pandemic, spending on IT and transformation projects is normalizing as companies see growth slowing. Firms are prioritizing shorter-duration projects with stronger return-on-investments, Piper Sandler lead analyst Arvind Ramnani wrote in a recent note to investors.

Customers "are more and more focused on cost resilience and many of them are having to make really hard choices," said Chief Executive Officer Julie Sweet in a post-earnings conference call.

The strategy and consulting business will suffer a slight decline in sales in the second quarter, said Sweet, adding that the weakness is coming from industries such as retail and consumer goods.

For the current quarter, Accenture (NYSE:ACN) forecast revenue in the range $15.20 billion to $15.75 billion. The mid-point of the guidance is lower than analysts' estimate of $15.61 billion, according to Refinitiv.

A lower forecast by Accenture, considered the IT services and consulting bellwether, is a worry for the sector.

Last month, Cognizant Technology Solutions (NASDAQ:CTSH) Corp slashed its revenue and adjusted earnings guidance for the full-year ending Dec. 31, citing higher costs and pullback in contracts.

For fiscal 2023, there will be softer demand for new consulting projects, said Julie Bhusal Sharma, equity analyst at Morningstar.

"We think generally, caution will persist – leading to delays in decision making, and that spending will be the softest in smaller deals over larger deals," Sharma added.

The warning overshadowed Accenture's higher-than-expected revenue and earnings in the first quarter.

Sales grew 5% to $15.7 billion in the quarter ended Nov. 30, higher than analysts' average estimate of $15.58 billion, and included a higher-than-anticipated 9.5% negative impact from a strong dollar.

Diluted earnings for the quarter were $3.08 per share, beating analysts' estimate of $2.91.