Salesforce stock rallies following raised outlook, with stronger dollar seen as only major headwind

Salesforce stock rallies following raised outlook, with stronger dollar seen as only major headwind

Salesforce Inc. shares rallied in the extended session Tuesday after the cloud-based customer-relationship-management company said business remained strong amid the current rocky economic landscape and hiked its earnings forecast for the year.

Prior to the report, some analysts were concerned that reports of a slowdown in capital spending would be reflected in Salesforce’s CRM
results and outlook, but the only headwind the company reported in its conference call with analysts was a substantial rise in the dollar.

That led Salesforce to trim its revenue forecast for the year to a range of $ 31.7 billion to $ 31.8 billion, from its forecast of $ 32 billion to $ 32.1 billion back in March. Operational efficiencies, however, allowed for Salesforce to hike its earnings forecast to a range of $ 4.74 to $ 4.76 a share, up from a previous forecast of $ 4.62 to $ 4.64 a share.

Analysts surveyed by FactSet expect $ 4.66 a share on revenue of $ 32.06 billion for the year.

Salesforce shares surged about 9% after hours, following a 2.9% decline in the regular session to close at $ 160.24.

On the call with analysts, Salesforce Chairman and Co-Chief Executive Marc Benioff said the lower revenue forecast is the result of foreign exchange headwinds, particularly singling out the dollar’s jump against the Japanese yen “as we roll this revenue out from the Japanese market to our US dollars. ” Over the past three months alone, the dollar USDJPY
has surged 12% against the yen, compared with the 5% to 6% rise against the euro USDEUR
and the British pound USDGBP,
the other main currencies to which Salesforce is exposed.

Given the current economic environment, “our whole selling strategy will change,” Benioff told analysts. “We’re going to focus more on how we can deliver productivity for the customer, and lower their cost.”

“We’re mindful of the uncertain macro environment and that includes continuing FX volatility, and so I believe that our guidance is appropriately conservative under the circumstances,” Amy Weaver, Salesforce’s chief financial officer, told analysts on the call.

Read: No tech sector appears safe from the spring swoon

Amid those FX headwinds, Weaver forecast operating margins of about 20.4% for the year, compared with a forecast of about 20% back in March, and batted away rumors that the company was cutting back on hiring, explaining that it was hiring “at a much more measured pace. ”

The improved margin forecast “is not the result of any single change,” Weaver told analysts. “It’s really driven by disciplined decision-making, and unlocking incremental efficiencies across the entire business.”

“We’ve asked each leader to step up, to really look across their business and to strategically prioritize their investment, and this is only to make sure that we’re getting the highest return for every dollar that we invest,” Weaver said.

Weaver singled out the contribution from Slack Technologies in the forecast in that Salesforce still expects $ 1.5 billion in revenue for the year.

“Slack again outperformed our revenue expectations with $ 348 million in Q1 compared to our guide of 330 million,” Weaver told analysts on the call. “The number of customers spending more than $ 100k annually grew 45% year-over-year.”

Salesforce expects adjusted second-quarter earnings of $ 1.01 to $ 1.02 a share on revenue of $ 7.69 billion to $ 7.7 billion, while analysts surveyed by FactSet had forecast $ 1.14 a share on revenue of $ 7.77 billion.

Weaver said $ 200 million of the $ 300 million cut in forecast revenue is baked into the current, or second, quarter, according to Weaver.

The company reported fiscal first-quarter net income of $ 28 million, or 3 cents a share, compared with $ 469 million, or 50 cents a share, in the year-ago period. Adjusted earnings were 98 cents a share, compared with $ 1.21 a share in the year-ago period.

Revenue rose to $ 7.41 billion from $ 5.96 billion in the year-ago quarter.

Analysts surveyed by FactSet had estimated earnings of 94 cents a share on revenue of $ 7.38 billion, based on Salesforce’s forecast of 93 cents to 94 cents a share on revenue of $ 7.37 billion to $ 7.38 billion

Over the past 12 months, Salesforce shares have fallen nearly 33%, while the iShares Expanded Tech-Software Sector ETF IGV
has dropped 20%, the S&P 500 index SPX
has slipped 1.7%, the tech-heavy Nasdaq Composite Index COMP
has declined 12.1%, and the Dow Jones Industrial Average DJIA
– which counts Salesforce as a component – has shed 4.5%.

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