SAP Beats Q1 Earnings Ests - Analyst Blog

SAP AG SAP reported first-quarter non-IFRS earnings per share of €0.56 (77 cents), surpassing the Zacks Consensus Estimate of 62 cents a share by 24.2%. However, on a year-over-year basis, earnings were down from €0.58 a share. The company's flagship innovation, SAP HANA and its successful transition to the cloud has been a growth driver for the profits in the first quarter of 2014.

Total revenue generated in the first quarter of 2014 was €3.7 billion ($5.1 billion), up 6% year over year at constant currency. Revenues during the quarter, primarily driven by strong growth in the cloud subscription revenues, were in line with the Zacks Consensus Estimate of $5.1 billion.

Revenues by Segment

Could Subscriptions & Support: The segment garnered revenues of €221 million ($303 billion) in the quarter, up a robust 38% year over year at constant currency.

Software & Support Revenues: The segment reported revenues of €2.8 billion ($3.9 billion), up 7% year over year at constant currency.

Software and Software-Related Service Revenues: This sub-segment includes Support, Subscription and other software-related services revenues. Revenues in this segment grew 9% year over year to €3.1 billion ($4.2 billion).

Revenues by Region

The EMEA region reported strong performance, in spite of uncertainties in CIS due to the Crimea crisis. Non-IFRS software and software-related service revenues surged 8% year over year at constant currencies, driven by 39% growth in non-IFRS cloud subscription and support revenue at constant currencies and strong software revenue growth in Africa, Southern Europe and France.

The Americas region also reported a healthy performance in the first quarter of 2014 with 10% growth in non-IFRS software and software-related service revenue at constant currencies and 37% growth in non-IFRS cloud subscriptions and support revenue at constant currencies. In the North American region, SAP witnessed a fast transition to the cloud along with a strong software revenue performance from Canada. This apart, the company continues to witness strong demand in Latin America with growth opportunities across all markets.

SAP reported a mixed performance in the APJ region. The company reported Non-IFRS Cloud subscriptions and support revenue growth of 43% at constant currencies. Additionally, Non-IFRS software and software-related service revenue also grew in the mid-single-digit range at constant currencies.

Although Japan performed below expectations, China reported a strong performance. In China, SAP achieved strong double-digit software revenue growth at constant currencies, which demonstrates the success of SAP's long-term commitment and growth strategy for China.

Margins

For the first quarter of 2014, the company reported gross margin of 67%, flat year over year, while operating margin grew slightly year over year from 18% to 20%.

Cash and Balance Sheet

Exiting the quarter, the company had an operating cash flow of €2.35 billion ($4.0 billion), reflecting a 9% increase year over year. Free cash flow at the end of the first quarter grew 8% year over year to €2.22 billion ($3.0 billion).

As on Mar 31, 2014, SAP had total group liquidity (includes cash and cash equivalents and short term investments) of €5.06 billion ($7.0 billion) compared with €2.84 billion as on Dec 31, 2013. Net liquidity as on Mar 31, 2014 was €750 million ($1.0 billion) compared with -€1.47 billion as on Dec 31, 2013.

Outlook

Concurrent with the earnings release, management reiterated its guidance for fiscal 2014.

The company expects full-year 2014 non-IFRS cloud subscription and support revenues to be in the range of €950 to €1,000 million, at constant currencies. The upper end of this range represents a growth rate of 32%.

The company expects full-year 2014 non-IFRS software and software-related service revenues to increase by 6–8% at constant currency and full-year 2014 non-IFRS operating profit to be in the range of €5.8 billion to €6.0 billion at constant currency.

This apart, the company also provided its mid-term 2014 guidance. SAP expects the combination of a stable, highly-profitable core and fast-growing cloud business to deliver continued growth and margin expansion. The company aims to further increase its total revenue to at least €20 billion and total revenue from its cloud business including cloud-related professional services to approximately €2 billion by 2015.

SAP currently holds a Zacks Rank #3 (Hold). Better-ranked stocks in the sector include Candence Design Systems, Inc. CDNS, Dealertrack Technologies Inc. TRAK, both carrying a Zacks Rank #1 (Strong Buy) and Ansys Inc. ANSS carrying a Zacks Rank #2 (Buy).

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