Chicago Tribune

Accenture posts loss; Growth at Andersen slows

by Robert Manor (October 12, 2001)

The consulting industry, already shaky from the weak economy, has dropped off sharply in the month since the terrorist attacks as business executives look to cut costs.

"Consulting budgets are among the first things cut during an economic downturn," said George Nichols, an analyst with Morningstar Inc. "A lot of consultants are sitting on the bench waiting for projects."

It is doctrine in the industry that consultants are the first to go when recessions arrive. Consulting is an easy expense to cut. Nor do clients feel the same responsibility toward consultants that they do employees--and consultants don't receive severance or other layoff benefits.

Accenture Ltd., the world's largest consulting firm, on Thursday announced a loss of $369.8 million for the fourth quarter ended Aug. 31. Another large professional services company, Andersen, reported record revenues for the year, but the company's consulting business grew more slowly than it had forecast at the start of the year. Andersen does not release earnings.

Jack Sweeney, editor of Consulting Magazine, said the publication recently lowered its estimate for the consulting industry's revenue growth this year to 7 percent. While that's an acceptable performance for some other industries, it's off sharply from the 18 percent or more growth in revenue that consulting firms have enjoyed in recent years.

"There is a lot of uncertainty among business managers right now, and periods of uncertainty are the worst times for consultants," Sweeney said. Potential clients aren't sure of what is coming next, and so have no need for professional advice to deal with future circumstances.

Sweeney also said the consulting industry is coming off a boom that began in the mid-1990s.

The Y2K scare at the end of the last century was a blessing for computer industry consultants, who got work from companies fortifying their networks against possible collapse. During the dot-com bubble, young and inexperienced managers armed with other people's money spent heavily to obtain consultants' advice on running their businesses.

"Today there is no one big thing," Sweeney said.

At Andersen, Chief Executive Joseph Berardino remains optimistic about his firm's plans to expand in consulting. But he acknowledged that the terrorist attacks of Sept. 11 have hurt business.

"Our first quarter begins in September and it probably won't be great," Berardino said. He said potential clients who might have made the decision to hire an Andersen consultant this month are holding off until later in the fall to decide.

"We had been well into double-digit growth in recent years," Berardino said. But for its most recent fiscal year, Andersen's consulting revenues rose just 6 percent.

Andersen is an international firm, and the dollar's strength hurt revenues earned in weaker currencies, Berardino said. "The dollar cost us 4 or 5" percent in growth, he said.

There is some good news, at least for Accenture shareholders.

The company posted a loss in the fourth quarter largely because of stock awards to its staff and an expensive marketing campaign to establish its new identity. Formerly known as Andersen Consulting, it split from Andersen last year and went public in July. In recent months, Accenture has laid off 2,100 employees, and another 1,000 are on sabbatical.

For the year, Accenture reported net income of a little more than $1 billion, on revenue of $13.4 billion. More important, the company said it expects to remain profitable next year.

"What I'm really surprised about is that management has not revised estimates for the year," S.G. Cowen Securities analyst Moshe Katri told Reuters. "Net-net, it was very positive."

On Thursday Accenture's stock jumped $1.49, to $15.16, on the New York Stock Exchange.

Tom Rodenhauser, president of Consulting Information Services, said there are some strong sectors in the consulting industry resulting from the terrorist attacks.

"There has been a spike in activity in certain areas like data security," Rodenhauser said. "But it's not enough to lift the whole industry out of the swamp it is in."

Still, observers note that the consulting industry is in no danger of extinction--it has become an established part of commercial life.

Typically, demand for consultants increases about six months before the economy climbs out of recession, industry analysts say.

"Most people are expecting business to pick up in the early part of next year," Rodenhauser said.