Frugal retail clients prompt Accenture warning on weak consulting business

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By Yuvraj Malik

-Accenture Plc warned that a pullback in spending from clients who were postponing business improvement projects, especially in retail, was hurting its consulting business and forecast quarterly sales that could miss market estimates.

Shares in the company fell as much as 6% on Friday.

After a pandemic-led boom, spending on IT and transformation projects is slowing as companies prioritize projects that deliver stronger return-on-investments in an uncertain economy.

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

Sweet said Accenture (NYSE:ACN)'s strategy and consulting business would decline slightly in the second quarter. She added clients were still spending on technology, cloud services and on projects that helped cut costs, but advertising and marketing initiatives were shrinking, and retailers had cut back majorly.

Accenture forecast revenue between $15.20 billion and $15.75 billion for its second quarter ending Feb. 28. Analysts expected $15.61 billion, according to Refinitiv.

Last month, rival Cognizant Technology Solutions (NASDAQ:CTSH) Corp slashed its revenue and profit guidance for this year, citing higher costs and pullback in contracts.

There will be softer demand for new consulting projects in fiscal 2023, said Julie 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, where hitting the pause button has more repercussions," Sharma added.

The weak outlook commentary overshadowed Accenture's higher-than-expected revenue and earnings in the first quarter ended Nov. 30, when sales grew 5% to $15.7 billion, surpassing an average analysts' estimate of $15.58 billion.

Adjusted earnings of $3.08 per share beat an average estimate of $2.91.