SAP Quarterly Revenue Exceeds Estimates on Currency BoostAaron Ricadela
SAP SE reported first-quarter sales that beat analysts’ estimates as a weaker euro boosted revenue, even as acquisition and restructuring costs held profitability in check.
Sales rose 22 percent to 4.5 billion euros ($4.8 billion), and operating profit adjusted for some items was 1.06 billion euros, the Walldorf, Germany-based business-software maker said Tuesday. Analysts had estimated 4.3 billion euros in revenue and currency-adjusted operating profit of 1.07 billion euros, according to data compiled by Bloomberg.
Chief Executive Officer Bill McDermott is positioning SAP for growth from online software the company rents to businesses -- a dynamic also affecting competitors including Oracle Corp. and Microsoft Corp. Meanwhile SAP’s licenses from software installed on customers’ server computers are growing more slowly. Online software contracts deliver less money up front, which is suppressing SAP’s long-term profitability.
“We’re a growth company and we have kept our end of the bargain on the growth,” McDermott said in an interview. “Growth companies have to invest for the future.”
Shares of SAP rose 3.4 percent to 69.68 euros at 11:07 a.m. in Frankfurt. They had gained 16 percent this year through yesterday.
The rising dollar is giving SAP a boost as it engages in a fight for cloud-computing contracts with business-software suppliers Workday Inc., Salesforce.com Inc. and its traditional rival Oracle, which said last month it can sell more than $1 billion of new subscription licenses for applications and databases this year.
SAP’s estimated 2 billion euros of cloud-computing application and database sales this year may include about 65 percent new business, McDermott said, which translates to about $1.4 billion at current exchange rates.
“The first-quarter performance confirmed the robustness of the core business,” Kepler Cheuvreux analyst Laurent Daure said in a note to clients. “The operating margin continued to be under pressure” on account of SAP’s $7.2 billion takeover of software maker Concur Technologies Inc. last fall.
The dollar has gained about 12 percent against the euro since the start of the year. About 28 percent of SAP’s 17.6 billion euros in sales last year came from the U.S.
Excluding the currency boost, operating profit and margins declined during the quarter. That’s mainly due to acquisitions including Concur and Fieldglass Inc. Essentially, SAP is trading some profitability for the ability to spur growth.
Revenue from software licenses and support rose 16 percent to 3.15 billion euros, while sales from cloud subscriptions and support more than doubled to 509 million euros. SAP’s cost of delivering subscription software more than doubled in the quarter.
Acquisition costs and charges tied to a plan to cut 2,200 positions this year are also holding profitability down, according to Chief Financial Officer Luka Mucic. SAP started offering early retirements in the U.S. in the first quarter and will introduce similar programs in Europe this quarter.
SAP reiterated its full-year forecasts in currency-adjusted terms. Operating profit excluding some items is set to receive a boost of 10 percentage points to 13 percentage points this year from the euro’s slide, SAP said. The company had previously predicted a 14 percentage point benefit.