Accenture flags pressure on consulting business

Accenture outlined weakness in its consulting business and forecast lower-than-expected quarterly sales overall, signalling 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 prioritising 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 CEO 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 forecast revenue in the range US$15.20 billion (A$22.7 billion) to US$15.75 billion (A$23.5 billion).

The mid-point of the guidance is lower than analysts' estimate of US$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 slashed its revenue and adjusted earnings guidance for the full-year ending December 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 five percent to US$15.7 billion in the quarter ended November 30, higher than analysts' average estimate of US$15.58 billion, and included a higher-than-anticipated 9.5 percent negative impact from a strong dollar.