Salesforce (CRM) shares were sharply lower in pre-market trading after the enterprise software group trimmed its full-year revenue forecast, despite stronger-than-expected second quarter earnings, amid a pullback in business spending and a surging U.S. dollar.
Salesforce said its sees full-year sales in the region of $30.9 to $31.00 billion, down from its prior forecast of $31.7 billion to $31.8 billion, thanks in part to headwinds linked to the surging U.S. dollar and increased sector competition. Non-GAAP earnings are expected to come in around $4.72 per share, a few pennies shy of Street forecasts, as deals take longer to close businesses trim investment spending.
For the three months ending in July, Salesforce posted a Street-beating bottom line of $1.19 per share, however, as demand for its work-flow solutions, particularly from companies looking to incorporate hybrid work, remained solid, with sales rising 22% from last year to $7.72 billion.
That momentum may have allowed Salesforce to maintain its operating margin guidance, a key industry metric, for the current fiscal year, which it sees expanding by 170 basis points to 20.4%.
"FX continued to represent a headwind as the dollar continued to strengthen throughout the quarter and the headwind was about $50 million more than we had guided," CFO Amy Weaver told investors on a conference call late Wednesday. "The total year-over-year FX headwind is now $800 million, an incremental $200 million year over year since our previous guidance."
"We (also) started to see more measured buying behavior from our customers, which began in the last month of the quarter," Weaver added. "This resulted in stretched sales cycles, additional deal approval layers and deal compression. In addition, we saw slowing in our create and close, Slack self-serve and SMB businesses, which tend to be leading macro indicators."
Salesforce shares were marked 6% lower in early Thursday trading to change hands at $169.38 each
The greenback's 2022 surge, the biggest in two decades, has added a significant headwind to U.S. corporate earnings growth, as the repatriation of overseas profits -- crucial for the tech sector -- gets more expensive.
Morgan Stanley analysts, in fact, recently calculated that a percentage point gain for the greenback shaves around 0.5 percentage points from S&P 500 earnings.
Bank of America strategist Savita Subramanian, meanwhile, said the dollar headwinds clipped 2 percentage points from S&P 500 sales over the second quarter, the biggest hit since 2015, and will likely accelerate over the three months ending in September.
