Salesforce stock tumbles after earnings cut, sales forecast trumps first big buyback plan

By Jeremy C. Owens

Cloud software company executives plan to repurchase $10 billion in stock while cutting full-year guidance, missing expectations for third-quarter guidance

Salesforce Inc. executives lowered their full-year guidance and projected a worse third quarter than Wall Street expected on Wednesday, while pledging billions in first-time share buybacks.

Salesforce (CRM) reported second-quarter earnings of $68 million, or 7 cents a share, on revenue of $7.72 billion, up from $6.34 billion a year ago. After adjusting for stock-based compensation and other effects, the cloud software company reported earnings of $1.19 per share, compared with $1.48 per share a year ago. Analysts on average had expected adjusted earnings of $1.03 per share on sales of $7.69 billion, according to FactSet.

While beating their results, Salesforce executives missed their forecasts. For the third quarter, which will include the annual Dreamforce conference in September – a major revenue driver for the company – Salesforce executives reported adjusted earnings of $1.20 to $1.21 per share on sales of 7, $82 to $7.83 billion. Analysts on average were modeling adjusted earnings of $1.28 per share for the third quarter on revenue of $8.07 billion, according to FactSet.

For the full year, Salesforce executives cut their full-year guidance to $4.71-$4.73 per share on adjusted earnings on sales of $30.9 billion-$31 billion, after saying 4 $.74 to $4.76 per share on three-month revenue of $31.7 billion to $31.8 billion. from. Executives cut their full-year revenue forecast slightly three months ago, but raised their adjusted earnings forecast.

The shares fell 6.7% in after-hours trading on Wednesday, after closing with a 2.6% gain at $180.62.

Analysts had expected ongoing concerns about business spending and other issues, such as the strengthening dollar, to keep Salesforce from raising its forecast.

“While we expect strong F2Q results, we believe Salesforce will adopt the approach taken by other software companies, whereby a ‘beat and meet’ or ‘beat and drop’ is much more likely than a ‘beat and raise’ to the top,” Evercore ISI analysts wrote ahead of the earnings report, while maintaining their $250 price target on the stock.

Salesforce implemented its first major stock buyback plan, committing $10 billion to buy its own stock.

“We are excited to launch our first-ever share buyback program to continue delivering incredible value to our shareholders on our path to $50 billion in FY26 revenue,” the co-CEO said. Marc Benioff in a statement. He added on a conference call with analysts that the buyout program did not take M&A activity “off the table.”

While the growth of cloud software has continued, concerns remain for the next few months. Analysts say companies are looking to cut costs and cut spending due to economic concerns, which could punish Salesforce and other software names.

“We are seeing a more measured buying environment,” Salesforce co-CEO Bret Taylor acknowledged in a conference call with analysts Wednesday night.

Salesforce chief financial officer Amy Weaver noted stretched sales cycles and more layers for deal approval at the end of the quarter, particularly in North America and major European markets.

Oppenheimer’s research “indicates that Salesforce remains a long-term market share gainer for companies, but companies’ near-term spending plans on Salesforce, and in general, are under pressure from macro uncertainty. “, the analysts wrote at the end of last week in an earnings overview. report, while maintaining an Outperform rating and $240 price target. “Growth investments for digital transformation are increasing in priority as growth becomes harder to find, but companies are also streamlining operating cost structures, which is lengthening sales cycles.”

Salesforce stock has fallen 28.8% so far this year, as the Dow Jones Industrial Average – which counts Salesforce as one of its 30 constituents – has fallen 9.4% and the S&P index 500 dropped 13.4%.

-Jeremy C. Owens


(END) Dow Jones Newswire

08-24-22 2053ET

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