salesforce.com Trims Profit Outlook Amid FX Headwinds

By Markets Fool.com

Image source: Salesforce.com.

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Salesforce.com (NYSE: CRM) reported fiscal 2017 second-quarter results on Aug. 31. The global leader in customer relationship management software delivered solid growth in revenue and earnings, but sales weakness toward the end of the quarter and an expected negative impact from foreign exchange prompted management to lower its profit forecast for the year ahead.

Salesforce results: The raw numbers

Metric

Q2 2017

Q2 2016

Growth (YOY)

Revenue

$2.037 billion

$1.635 billion

25%

Adjusted net income

$170.426 million

$128.263 million

33%

Adjusted EPS

$0.24

$0.19

26%

Data source: Salesforce.com Q2 2017 earnings press release(link opens PDF).

What happened with Salesforce this quarter?

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Total revenue jumped 25% year over year to$2.04 billion, with subscription revenue increasing 24% to$1.89 billion and professional services revenue surging 33% to$151 million.

That strong performance is likely to continue in the quarters ahead, with Salesforce recording $3.82 billion in deferred revenue on its balance sheet as ofJuly 31, representing an increase of 26% from the year-ago period. Salesforce also ended the first quarter with $8 billion in unbilled deferred revenue -- essentially business that is contracted but not yet invoiced -- signifying year-over-year growth of 29%.

"Second quarter revenue grew 25% in dollars, and 26% in constant currency, propelling Salesforce past the $2 billion quarterly revenue milestone," said Chairman and CEO Marc Benioff in a press release. "No other enterprise software company of our size is growing at this pace."

Salesforce also continues to improve its profitability.

"We also delivered another quarter of year-over-year non-GAAP operating margin improvement, even as we closed our largest acquisition ever with Demandware," said CFO Mark Hawkins.

That helped Salesforce's non-GAAP earnings per share -- which exclude stock-based compensation, acquisition-related expenses, income tax adjustments, and certain other items -- rise 26% to $0.24.

Looking forward

For the third quarter, Salesforce expects revenue of $2.11 billion to $2.12 billion, which would be an increase of 23% to 24% from the year-ago period. The company anticipates a GAAP loss of $0.05 to $0.04 per share, while non-GAAP earnings per share are projected to be in the range of $0.20 to $0.21. And deferred revenue is forecast to rise approximately 20% year over year.

Salesforce also adjusted its fiscal 2017 full-year guidance, including:

  • Revenue of $8.275 billion to $8.325 billion, up from previous guidance for $8.16 billion to $8.20 billion.
  • GAAP earnings per share of $0.27 to $0.29, up from $0.20 to $0.22.
  • Non-GAAP EPS of $0.93 to $0.95, down from prior estimates of $1.00 to $1.02.
  • And full-year operating cash flow growth of 20% to 21%, down from 25% to 26%.

During a conference call with analysts, COO Keith Block mentioned that Salesforce experienced some "softness" in its business toward the end of the second quarter, primarily in its U.S. operations. Additionally, Hawkins noted that foreign exchange movements would likely ding Salesforce's earnings and operating cash flow generation for the remainder for the year. Yet that did not deter Salesforce from boosting its full-year revenue outlook.

"Despite significant FX headwinds which impacted many of our key financial metrics, I'm pleased to raise our top-line guidance for the full fiscal year 2017 to $8.325 billion in revenue at the high end of the range," said Hawkins.

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Joe Tenebruso has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Salesforce.com. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.