Salesforce shares fall after reduced earnings and sales forecast beat first major share repurchase plan

Salesforce shares fall after reduced earnings and sales forecast beat first major share repurchase plan

Salesforce Inc executives. lowered their forecasts for the year and projected a worse third quarter than Wall Street had expected on Wednesday, as they pledged billions in share buybacks for the first time.

CRM Salesforce,
+2.28%
reported second-quarter earnings of $68 million, or $0.7 per share, on revenue of $7.72 billion, up from $6.34 billion a year ago. After adjusting for stock-based compensation and other effects, the cloud software company reported earnings of $1.19 a share, up from $1.48 a share a year ago. Analysts, on average, had expected adjusted earnings of $1.03 per share on sales of $7.69 billion, according to FactSet.

As they beat their results, Salesforce execs got their predictions wrong. For the third quarter, which will include the annual Dreamforce conference in September—a key revenue generator for the company—Salesforce executives steered toward adjusted earnings of $1.20 per share to $1.21 per share in sales of $7.82 billion to $7.83 billion. Analysts, on average, were modeling adjusted third-quarter earnings of $1.28 per share and revenue of $8.07 billion, according to FactSet.

For the full year, Salesforce executives lowered their annual forecast, which now forecasts adjusted earnings of $4.71 to $4.73 per share on sales of $30.9 billion to $31 billion, after declaring $4.74 to $4.76 a share on revenue of $31.7 billion to $31.8 billion three months ago. Executives slightly lowered their annual revenue guidance three months ago but raised their adjusted earnings forecast.

The shares were down more than 4% in after-hours trading on Wednesday immediately after the results were released, after closing with a 2.6% gain at $180.62.

Analysts had expected continued concerns over corporate spending and other issues, such as the strengthening dollar, would prevent Salesforce from increasing its guidance.

“While we expect solid results in F2Q, we believe Salesforce will take the approach that other software companies have been taking, whereby a ‘knock and answer’ or ‘knock and fall’ is much more likely than a ‘knock and rise’ at the top,” Evercore ISI analysts wrote ahead of the report, maintaining their $250 price target for the stock.

Salesforce instituted its first major stock buyback plan, committing $10 billion to buy its own stock.

“We are thrilled to initiate our first-ever share repurchase program to continue to deliver incredible value to our shareholders on our path to $50 billion in FY26 revenue,” Co-Executive Chairman Marc Benioff said in a statement.

While the growth of cloud software has continued, there are concerns about the coming months. Analysts believe companies are looking to cut costs and eliminate any spending amid economic concerns, and that could punish Salesforce and other software names.

“We are witnessing a more measured buying environment,” acknowledged Salesforce co-CEO Bret Taylor during a conference call with analysts on Wednesday.

Salesforce CFO Amy Weaver noted lengthened sales cycles and more layers for deal approval later in the quarter, particularly in North America and key European markets.

Oppenheimer’s research “indicates that Salesforce continues to gain long-term corporate market share, but that Salesforce’s short-term corporate spending plans, and in general, are under pressure from macro uncertainty,” analysts wrote at the end of the report. last week in a preview of earnings. report, maintaining a top performance rating and a target price of $240. “Growth investments for digital transformation are increasing in priority as growth becomes harder to find, but companies are also streamlining operating cost structures, which is lengthening sales cycles.”

Salesforce stock is down 28.8% so far this year as the Dow Jones Industrial Average DJIA,
+0.18%
— which counts Salesforce as one of its 30 components — dropped 9.4% and the S&P 500 SPX index,
+0.29%
fell 13.4%.

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