Accenture warns of weaker FY24 as IT spending remains under pressure

In what will be a setback for Indian IT majors, IT services firm Accenture has forecast full-year earnings and first-quarter revenue below Wall Street targets on Thursday, signaling that high inflation and interest rates pressures will hurt demand through next year.

Shares of the company fell nearly 5% in trading before the bell after the company's fourth-quarter revenue also missed estimates.

The U.S. Federal Reserve's forecast earlier this month that it would leave interest rates elevated for longer than widely expected, has added to concerns that enterprise spending will take longer-than-expected to return to healthy levels.

Indian IT services giant Infosys Ltd halved its full-year revenue forecast in July, citing delayed decision-making on future projects from clients, while Tata Consultancy Services Ltd also flagged soft demand.

Accenture expects first-quarter revenue in the range of $15.85 billion to $16.45 billion, while analysts polled by LSEG forecast $16.43 billion.

The company has also forecast fiscal 2024 adjusted earnings per share to be in the range of $11.97 to $12.32, below estimates of $12.45. The mid-point of its revenue growth forecast of 2% to 5% in local currency also fell short of estimates.

Accenture's revenue rose 4% to $16 billion in the fourth quarter ended Aug. 31, compared with estimates of $16.08 billion.

The prospect of higher-for-longer borrowing rates is forcing businesses to rethink their digitization plans and technology budgets, hurting companies like Accenture that offer IT services ranging from strategy consulting to cloud migration.

"We have seen greater caution globally with lower discretionary spend, slower decision-making, and in particular for us, a significant impact from the challenges the communications, media and tech industries (CMT) have faced," Accenture CEO Julie Sweet said.

Generative artificial intelligence (AI) is also not seen as a big growth driver in the coming year. Accenture recorded $200 million in revenue from the sector in the fourth quarter, and expects customers to be experimental with their generative AI spending.

With inputs from Reuters