Accenture Won't Stop Growing in the Coronavirus Era

Business consulting and outsourcing veteran Accenture (ACN 0.28%) reported earnings early Thursday morning. The report, covering the second quarter of fiscal year 2020, exceeded Wall Street's expectations, and management painted a rosy picture of Accenture's long-term prospects. The next couple of quarters will be rocky, but the company is set up for impressive results after the COVID-19 pandemic.

Accenture's second-quarter results by the numbers

Data source: Accenture. GAAP = generally accepted accounting principles.

Accenture posted positive year-over-year revenue growth in each of its six operating groups. The gains ranged from a 2% increase in financial services to a 14% boost to the health and public service division.

The double-digit spike in health and public service sales was not directly related to the novel coronavirus outbreak. The real driver here was a double-digit increase in public service sales as the federal government stepped up both its outsourcing and consulting orders.

Here's where it gets interesting. Accenture posted new order bookings of $14.2 billion in the second quarter, a record performance on both the consulting and outsourcing sides of the house. New bookings stopped at $10.3 billion in the first quarter and $11.8 billion in the year-ago quarter, so this is an impressive spike. At the same time, the company scaled back its full-year revenue growth guidance from 7% to 4.5%, reflecting the expected business impact of the coronavirus. Third-quarter sales should land near $11.0 billion, right in line with the previous year's third-quarter performance.

How business gets done when the office is closed. Image source: Getty Images.

Why the next quarter won't benefit from those massive order bookings

How can the near-term revenue trend look soft even though Accenture booked a record volume of new orders? In short, the new business consists mostly of long-term contracts, and some of them won't even take effect until later this year. Business is relatively slow everywhere while the world deals with virus containment efforts.

"Our business is going to evolve differently for the next two quarters for a whole host of reasons," CEO Julie Sweet said on the second-quarter earnings call.

There's an upside to all of this for Accenture. The company plays an active role in helping other businesses deal with the virus outbreak's effects on day-to-day operations. For example, Sweet highlighted a recent deal where a customer wanted to implement online collaboration and communications tools for more than 60,000 employees in five days. Accenture partnered with Microsoft (MSFT -1.27%) to get the entire workforce onto the Microsoft Teams collaboration platform, completing that order on schedule.

That's just one unusually large example of a broad trend as remote work over digital links becomes the new normal in this coronavirus era.

What doesn't kill you makes a stronger investment

Accenture's report serves as a solid reminder that life will go on beyond the coronavirus scare. This global IT services giant expects a slight slowdown followed by booming revenue in fiscal year 2021 and beyond, as the glut of new orders start to convert into cash-generating revenue.

"The fundamentals of our business are strong, and we plan to emerge [from the health crisis] even stronger," Sweet said.

That might sound like empty executive spin on a dire situation, but I actually agree with Sweet's conclusion. Her words are backed by that sweet, sweet influx of new orders, and even the direct coronavirus slowdown over the next couple of quarters looks manageable. Accenture's shares have fallen 29% over the last month, in lockstep with the S&P 500. This report suggests that the price cuts to this particular stock went too far. The coronavirus has made a deep-discount value investment out of Accenture.