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Accenture forecasts lower Q1 revenue amid cautious global spending

IT services company Accenture (NYSE:ACN) has projected first-quarter revenue below Wall Street expectations on Thursday, as a challenging economic environment prompts clients to delay projects and reduce deal sizes. The firm expects Q1 revenue to be between $15.85 billion and $16.45 billion, while analysts polled by LSEG had estimated $16.43 billion.

The forecast comes amid concerns that enterprise spending will take longer to recover due to the US Federal Reserve's earlier decision this month to maintain high interest rates for an extended period than initially anticipated. This has led businesses to reconsider their technology budgets and digitization plans, adversely impacting companies like Accenture that provide a range of IT services, including strategy consulting and cloud migration.

Accenture CEO Julie Sweet noted a global trend of cautiousness, with slower decision-making and reduced discretionary spending. She highlighted the significant impact from challenges faced by the communications, media, and tech industries (CMT), which have seen a 12% drop in revenue in the fourth quarter.

The company reported a 4% increase in revenue to $16 billion for the fourth quarter ending August 31, slightly below estimates of $16.08 billion. Accenture also announced in August that it would lay off 890 staff from its Irish operations, where it currently employs around 6,500 people.

Other IT services firms have also faced similar challenges. Indian IT giant Infosys (NS:INFY) slashed its full-year revenue forecast in July due to delayed decision-making on future projects by clients, while Tata Consultancy Services (NS:TCS) has reported soft demand.

Erik Bradley, chief strategist at Enterprise Technology Research (ETR), said forward-looking spending for both IT consulting and outsourced IT sectors is slowing down to extremely low levels. Furthermore, generative artificial intelligence (AI) isn't expected to be a major growth driver in the upcoming year. Accenture recorded $200 million in revenue from this sector in the fourth quarter and anticipates customers will experiment with their generative AI spending.

Accenture also forecast fiscal 2024 adjusted earnings per share in the range of $11.97 to $12.32, falling short of estimates of $12.45. The mid-point of its revenue growth forecast of 2% to 5% in local currency also did not meet expectations.