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ACN: Good quarter fails to translate into guidance raise

Accenture reported good 1QFY26 results with revenue growth of 5%, at the upper end of the guidance band. Against the backdrop of a strong quarter and reasonable deal wins, the lack of tightening of FY2026 guidance band was a tad disappointing. The company indicated that there is no change in the discretionary spending environment. Read-through for Indian IT—no uptick in discretionary spending (not a base case), implying reliance on transformation and cost take-out programs to drive growth.

1QFY26—revenues at the top end of the guidance range once again

Accenture delivered revenue growth of 5% in c/c, at the top end of the 1-5% guided range. The growth included ~1% contribution from acquisitions. Revenue growth was led by financial services (+12% yoy in c/c) and CMT (+8%), while health and public services underperformed (-1%). Among geos, Americas and Europe grew 4% each, while APAC grew 9%. Growth in managed services (7%) outpaced consulting (3%) once again, aided by healthy growth in technology managed services. Clients continue to prioritize efficiency and resilience, leading to larger managed services contracts.

No change in revenue growth outlook, a tad surprising

One would have expected a tightening of the beginning-of-the-year revenue growth guidance range of 2-5% (1.5% inorganic contribution), noting (1) a strong 1QFY26, (2) steady growth of 10% yoy in bookings to US$20.9 bn and (3) a lower impact of DOGE on the US federal business assumed after 1QFY26 at 1% versus 1-1.5% at the beginning of the year. The lack of change captures a cautious approach and a lack of meaningful change in the demand environment in the past three months. The revenue growth outlook for 2QFY26 stands at 1-5%. Adjusted EBIT margin guidance for FY2026 stands at 15.7-15.9%, implying a 10-30 bps expansion. Adjusted EPS guidance of US$13.52-13.9 (+5-8%) stays unchanged, while GAAP EPS guidance has been cut a tad due to higher business-optimization costs.

Powering ahead in GenAI services

Accenture reported US$2.2 bn of GenAI bookings, growing 22% qoq and 76% yoy. The growth accelerated after a sharp slowdown in 3QFY25. GenAI revenue growth was strong on a qoq basis at 22% to US$1.1 bn. The company will stop disclosing GenAI bookings and revenues separately.

Read-through for Indian IT—no discretionary recovery and large deal focus

Discretionary spending remains unchanged, with no visible near-term rebound. Accenture indicated that client conversations continue to reflect caution amid macro uncertainty. While not our base case, a discretionary recovery would have provided further confidence to our 150-200 bps higher growth assumption for FY2027 across our coverage universe. Large-scale transformation programs and cost take-outs remain client priorities, with each deal competed aggressively by global peers, including Accenture. An increase in the number of such deals is critical to support the acceleration in industry growth.

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GenAI—separating from the pack

The GenAI momentum continues. Over the past nine quarters, about 100 incremental clients per quarter have initiated advanced AI projects, taking the total to ~1,300 clients out of 9,000. Most engagements are still in foundational stages because successful AI deployment requires data readiness, security and process redesign before scaling. Accenture noted that one in two advanced AI projects leads to a data program, underscoring that building a strong digital core is essential for success.

A key highlight was the role of ecosystem partnerships. Management stated that 60% of 1QFY26 revenue came from work with its top 10 ecosystem partners, and this segment outpaced overall growth. These partnerships are critical because clients operate with a network of technology providers and expect Accenture to integrate these systems and deliver integrated outcomes. Beyond the top 10, Accenture is expanding relationships with emerging AI and data companies and making strategic acquisitions to strengthen capabilities. This approach positions Accenture as the orchestrator of complex ecosystems, which is increasingly important as clients pursue large-scale reinvention programs

Fixed price contribution to overall revenues increasing

~ 60% of revenues of Accenture are fixed price, up about 10 points over the past three years. The increase is a function of—(1) aggressive participation by Accenture in managed services programs at a time when discretionary spending is weak and (2) rising client interest in commercial structures tied directly to realized outcomes, although this remains a very modest share of revenues today.

Key highlights from earnings call

* Demand. There is not much change in the market and it is tough to point to a catalyst that would spur discretionary spending, as most industries are undergoing specific challenges. Expect discretionary spends to remain unchanged during the year. Clients continue to prioritize reinvention and transformational programs, which convert to revenues more slowly. Cloud, data and platform modernization remain foundational to every reinvention program. Security is among the fastest-growing businesses, growing at very strong double-digits during the quarter.

*Growth. Organic growth of 4% yoy in local currency, broad-based across business segments. Americas growth was led by banking and capital markets, industrials and software and platforms and partly offset by revenue decline in public services (200 bps impact on geo growth). EMEA growth was led by the UK and Italy among geos and banking & capital markets, insurance and life sciences. Asia Pacific outperformed, led by Japan and Australia regions and banking and capital markets, communications & media and public services.

* Guidance. The revenue growth outlook reflects a strong performance in 1Q, healthy bookings, a solid pipeline and demand evolution for the rest of the year.

* Song. Accenture Song grew at mid-single digits during the quarter.

* Commercial models. Increase in FPP revenue mix to 60% led by proven capabilities and delivering outcomes for clients. the commercial models will continue to evolve as the focus shifts toward more outcome-based engagements.

* Reskilling. Nearly reached the goal of having 80K AI & data professionals.

* Advanced AI. Increasing adoption across enterprises with bookings of US$2.2 bn, up 76% yoy and revenues of US$1.1 bn, up 120% yoy. The scale represents early leadership position in these services. Demand for AI is rapidly maturing and clients are looking for * caled and holistic AI adoption, making it tougher to differentiate the revenues linked to Advanced AI. The company has over 1.3k advanced AI clients to date and has deployed over 3k reusable agents. Most of the work currently has been in isolated areas and not across the enterprise. This is changing now and rewiring it across the enterprise will require significant efforts.

* Headcount. Expect to increase headcount in the US and Europe through the year.

* Use cases. Clients have moved from models to embedding solutions, which provide industry context.

* Partnerships. Work with a broad set of partners, many of which have specific functions in an enterprise context. Forming new partnerships with AI & data companies, in line with technology evolution and client requirements. Clients have an ecosystem of partners and Accenture’s roles is to integrate and be among the leaders in working with relevant partners. Top 10 ecosystem partners contributed 60% of revenues and outpaced overall revenue growth. The AI partnerships will scale up with market and enterprise adoption.

* Pricing. There is improvement in several parts of the business with contract profitability improving, though these are early trends.

* Employee productivity. The differential in revenue and headcount will moderate in the upcoming quarters.

* M&A. Invested US$374 mn across six acquisitions during the quarter. The company expects to invest US$374 mn on M&A during the year. Acquisitions would contribute 150 bps to FY2026 revenue growth.

* Margin. Adjusted operating margin expanded by 30 bps yoy.

* Bookings. Overall book-to-bill of 1.1X with consulting book-to-bill of 1.0X and managed services at 1.2X.

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