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Accenture counts cost of surging USD as ACN stock hits YTD lows

12:19, 23 September 2022

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accenture office building sign
As the US dollar increases in value, Accenture profits come under threat due to its global presence - Photo: Getty Images

Despite maintaining healthy financials, Accenture (ACN) faces a profitability squeeze due to the surging US dollar. The company says the consequences of this are likely to play out in its 2023 fiscal year.

The Irish-American professional services provider caters to businesses such as Microsoft (MSFT) and Salesforce (CRM) and has seen robust demand for its services in the past year. Accenture’s annual gross profit grew a record 17% between 2020 and 2021.

Competitors such as Fiserv (FISV) and Fidelity National Information services (FIS) saw a similar rise in demand for their services in the same time period.

Accenture (ACN) price chart

Despite high demand for its services, around 60% of Accenture's operations are outside of the US, meaning the rising dollar (DXY) is a threat to its margins.

The demand for IT services are expected to continue to be robust providing a shield for businesses in the sector as they ride out a challenging economic period.

 

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Accenture reported a 17% increase in revenues in its 2021 financial reports, with almost 50% of this growth coming from communications and financial services.

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Accenture’s operations span globally, with more than 60% of it taking place outside the US. The company consolidates and reports its financials in US dollars. All of which makes its profits sensitive to changes in the dollar.

The US dollar is currently at its highest value against most currencies than it has been in decades. The euro is currently at its lowest level against the dollar (EUR/USD) in 20 years, while pound versus dollar (GPB/USD) is at its lowest since 1985.

Dollar index (DXY) price chart

Outlook for the sector

The demand for IT services has grown since 2020. Lockdown measures prompted companies to look towards investing in cloud based technologies, and this trend is expected to continue. This gives firms like Accenture an increase in clientele, and a possible protection for its margins during the upcoming economic downturn.

In a report on the trends in the sector, Paul H. Silverglate, partner at Deloitte says: “Leaders across industries are embracing service-based IT—much of it delivered via cloud—for increased agility, new capabilities, and better management of capacity and costs.”

He adds: “A recent Deloitte survey shows that XaaS (everything-as-a-service) adopters are seeking more consultative relationships with their vendors—and the deeper the engagement, the better the business outcomes.”

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