Why Is Salesforce (CRM) Up 6.8% Since Its Last Earnings Report?

A month has gone by since the last earnings report for Salesforce.com Inc CRM. Shares have added about 6.8% in that time frame.

Will the recent positive trend continue leading up to its next earnings release, or is CRM due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Salesforce 1Q19 Results

Salesforce reported splendid first-quarter fiscal 2019 non-GAAP earnings of 74 cents per share, which strongly beat the Zacks Consensus Estimate of 46 cents. The figure increased more than twofold from the year-ago quarter.

Revenues of $3.006 billion increased 25% year over year and surpassed the Zacks Consensus Estimate of $2.940 billion. Furthermore, revenues came above the guided range of $2.925-$2.935 billion. Revenues grew 22% at constant currency (cc). The rapid adoption of the company’s cloud-based solutions led to the better-than-expected results.

Top-line Details

Coming to its business segments, revenues at Subscription and Support increased about 27.2% from the year-ago quarter to $2.810 billion. Professional Services and Other revenues climbed 4.3% to $196 million.

Sales Cloud, Service Cloud, Platform and other and Marketing & Commerce Cloud grew 16.3%, 29.3%, 35.6% and 41.1%, respectively.
Geographically, the company witnessed revenue growth of 19%, 48.2% and 34.1% in the Americas, Europe and Asia Pacific, respectively, on a year-over-year basis.

Management is extremely optimistic about enhancement of customer experience that has aided growth of the cloud segment. Artificial intelligence (AI) related innovations have further boosted the same with Einstein Analytics providing helpful insights.

The company added and strengthened its relationships with a few notable customers during the quarter such as Citi, Philips and Santander UK, SoftBank and LUXA among others.

Additionally, the company’s acquisition of MuleSoft is a major positive, per management. The buyout has added an impressive integration platform. Via MuleSoft, Salesforce’s customers can connect their data on private or public cloud or on on-premise storage. The company’s recent acquisition of its long-time partner CloudCraze, a B2B ecommerce platform, will also be accretive for the company’s financials.

Operating Details

Salesforce’s non-GAAP gross profit came in at $2.312 billion, up 26.9% from the year-ago quarter. Gross margin expanded 90 basis points (bps) to 76.9%, primarily owing to solid revenue growth.

Non-GAAP operating expenses increased 20.7% year over year to $1.80 billion. As a percentage of revenues, operating expenses decreased 230 bps to 59.9%.

Salesforce posted non-GAAP operating income of $512 million, up 54.7% year over year. Operating margin expanded 320 bps to 17% driven by an improved gross margin base and lower operating expenses as a percentage of revenues.

Balance Sheet & Cash Flow

Salesforce exited the quarter with cash, cash equivalents and marketable securities of $7.16 billion compared with $4.52 billion in the previous quarter.

As of Apr 30, 2018, total unearned revenues were $6.2 billion, up 25% on a year-over-year basis (23% at cc).

Salesforce generated operating cash flow of $1.47 billion and free cash flow of $1.344 billion.

Guidance

For second-quarter fiscal 2019, revenues are projected between $3.22 billion and $3.23 billion, an increase of 25% year over year.

Non-GAAP earnings are expected in the range of 46–47 cents per share.

Deferred revenues are anticipated to increase in the range of 22–23% year over year, excluding the impact of the recently acquired MuleSoft.

The company raised its fiscal 2019 guidance. Revenues are now projected between $13.075 billion and $13.125 billion, an increase of 24–25% year over year, up from the previous expectation of $12.6 billion and $12.65 billion.

Non-GAAP earnings are expected in the range of $2.29–$2.31 per share.

Operating cash flow is anticipated to increase in the range of 14–15% year over year.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. There have been 14 revisions lower for the current quarter.

Carpenter Technology Corporation Price and Consensus

 

Carpenter Technology Corporation Price and Consensus | Carpenter Technology Corporation Quote

VGM Scores

At this time, CRM has a great Growth Score of A and a grade with the same score on the momentum front. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Zacks' style scores indicate that the company's stock is suitable for growth and momentum investors.

Outlook

Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. Interestingly, CRM has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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