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Salesforce shares fall despite strong earnings report




Salesforce shares fell in late trading on Wednesday, despite the company posting better-than-expected results for its fiscal first quarter ended April 30.

Investors are disappointed that the cloud-based software provider did not raise its full-year revenue outlook despite its first-quarter pace. On the company’s post-earnings conference call, CEO Marc Benioff said “while the economy is not in our control, our margins are.”

Benioff also spent a lot of time on the call addressing the company’s AI software offerings, but there’s no clarity on how those developments will affect growth — or when.

Shares of Salesforce (ticker: CRM ) fell 6.6% in late trading after the earnings report and conference call.

Salesforce CFO Amy Weaver said in an interview with Barron̵[ads1]7;s that it was a “solid quarter”, characterized by a sharp improvement in operating margins. She notes that the non-GAAP operating margin of 27.6% was about two points ahead of consensus, and 10 percentage points better than the year-ago quarter.

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But Weaver also said there are a few reasons she’s taking a conservative approach to full-year earnings guidance. In particular, she points out that the company still sees difficult macro conditions. She said the April quarter was similar to the January quarter in that regard, except that Salesforce saw some further tightening in professional services revenue as clients shift to projects that can generate returns more quickly.

Weaver added that the company’s Mulesoft unit was a “standout” in terms of performance in the April quarter, but with weaker results in commerce, marketing and Slack. She says the result is no surprise, with customers spending less in areas where they have more discretion to reduce costs.

For the quarter, Salesforce had revenue of $8.25 billion, up 11% from a year ago, or 13% in constant currency. That’s slightly above the top of the company’s guidance range of $8.18 billion and the Wall Street consensus of $8.14 billion.

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On an adjusted basis, the company earned $1.69 per share, 8 cents better than the top of the guidance range and a penny better than the Street consensus. Under generally accepted accounting rules, the company earned 20 cents per share in the quarter. Current remaining benefit obligations were $24.1 billion, up 12%.

For the July quarter, Salesforce sees revenue of $8.51 billion to $8.53 billion, up 10% and in line with the Wall Street forecast of $8.49 billion. The company reiterated its full-year revenue guidance of $34.5 billion to $34.7 billion, but raised expectations for full-year operating margins.

Weaver notes that the company bought back $2.1 billion in shares in the quarter, bringing its total since it began a repurchase program in August to $6 billion.

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Salesforce had a blockbust January quarter, delivering better than expected results and higher guidance.

Salesforce, a leader in cloud-based business software, also unveiled an expanded stock buyback program. It also created a board-level “business transformation committee” after five activist investors took stakes in the company. The board then dissolved a committee focusing on mergers and acquisitions. Add in some recent announcements about the company’s artificial intelligence plans, and the stage was set for a big move.

Since this March 1 earnings report, Salesforce stock has risen 32%.

Write to Eric J. Savitz at eric.savitz@barrons.com



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