Accenture stock sinks following Q2 results on government spending worries

Investing.com -- Accenture reported better-than-expected results for the second quarter of fiscal 2025 on Thursday, but shares fell due to concerns about government spending.

Accenture (NYSE:ACN) shares were down 7.5% just after 3 PM ET.

Accenture reported a slowdown in its federal services unit as the U.S. General Services Administration directed agencies to review and cancel non-essential consulting contracts. This unit, which contributed about 8% of Accenture’s total revenue in 2024, has been impacted by delays in new procurement actions, negatively affecting sales and revenue, the company stated on a post-earnings call.

Accenture reported Q2 earnings per share (EPS) of $2.82, just above the consensus estimate of $2.81. Revenue for the quarter came in at $16.7 billion, up 8.5% in local currency, also surpassing the $16.63 billion expected by analysts.

Total (EPA:TTEF) bookings stood at $20.9 billion, down 3.2% year-over-year and below the estimate of $21.69 billion. New bookings tied to generative AI totaled $1.4 billion.

The company reported a gross margin of 29.9%, lower than the 30.9% recorded a year ago and below the estimated 31.2%. Operating margin improved to 13.5% from 13% in the same quarter last year.

“Our second quarter results demonstrate that we continue to deliver on our strategy to lead reinvention for our clients and return to strong growth in FY25, with broad-based growth across markets, industries, and the types of work our clients seek from us," said Accenture Chair and CEO Julie Sweet.

For the full fiscal year, Accenture now expects EPS between $12.55 and $12.79, tightening its previous range of $12.43 to $12.79. Analysts had projected $12.72.

The company raised its revenue growth forecast to a range of 5% to 7%, compared to its prior outlook of 4% to 7%.

Operating margin is expected to be between 15.6% and 15.7%, slightly narrowing from the previous 15.6% to 15.8% range.

Following the results, Stifel analyst David Grossman lowered the price target on Accenture to $355 from $380 while maintaining a Buy rating.

"Management highlighted incremental uncertainty over the past few weeks that could impact demand; however, they have not seen any impact yet," Grossman commented.

Elsewhere, BofA Securities analyst Jason Kupferberg said the stock "deserves better" following the solid results.

"We recognize the general “glass half empty” sentiment amid elevated macro volatility, but we believe that shares of ACN are being excessively punished today based on the totality of the F2Q print," Kupferberg  commented. "While bears point to cautious commentary on DOGE/macro, margins and bookings being light, and potential downward risk to F26 estimates, ACN is not currently seeing any change in client behavior outside of US Federal, which is 8% of total revenues."  The analyst maintained a Buy rating and $431 price target on the stock

(Vahid Karaahmetovic contributed to this article)